/raid1/www/Hosts/bankrupt/TCREUR_Public/211021.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Thursday, October 21, 2021, Vol. 22, No. 205
Headlines
C R O A T I A
AGROKOR DD: Fortenova to Sell 76.03% Stake in Cibona Tower
D E N M A R K
DFDS A/S: Egan-Jones Retains BB- Sr. Unsecured Debt Ratings
F R A N C E
PIXEL 2021: Fitch Assigns Final BB+(EXP) Rating on Class F Debt
PIXEL 2021: S&P Assigns Prelim. B-(sf) Rating on Class F Notes
G E R M A N Y
FLENDER INT'L: Fitch Lowers LT IDR to 'B+', Outlook Stable
OQ CHEMICALS: S&P Alters Outlook to Positive & Affirms 'B-' LT ICR
I R E L A N D
AQUEDUCT EURO 4-2019: Fitch Assigns Final B- Rating on Cl. F Notes
ARBOUR CLO VIII: Fitch Assigns Final B- Rating on Class F-R Notes
BLUEMOUNTAIN EUR 2021-2: S&P Assigns Prelim. B- Rating on F Notes
GTLK EUROPE: Fitch Gives 'BB+(EXP)' to New USD Guaranteed Notes
PERRIGO CO: Egan-Jones Cuts Sr. Unsecured Debt Ratings to BB
I T A L Y
ITALY: Egan-Jones Keeps BB+ Sr. Unsecured Debt Ratings
STELLANTIS: Draws Up Reorganization Plan for Turin Industrial Hub
M A C E D O N I A
TOPLIFIKACIJA: Creditors Accept Adora's Offer to Acquire Plants
M O N T E N E G R O
MONTENEGRO AIRLINES: To Lease Minibuses to Generate Revenue
N E T H E R L A N D S
STEINHOFF INT'L: Loses Bid to Appeal Ruling in Liquidation Case
P O R T U G A L
LUSITANO MORTGAGES 5: Fitch Affirms CC Rating on Class D Debt
R O M A N I A
ONIX ASIGURARI: Fitch Affirms 'BB-' IDR, Outlook Stable
R U S S I A
RUSSIAN FINANCIAL: Bank of Russia Ends Provisional Administration
SOVCO CAPITAL: Fitch Assigns 'BB' LT IDRs, Outlook Stable
S L O V A K I A
365 BANK: Fitch Gives 'BB-(EXP)' Rating to New EUR250MM SP Bonds
S P A I N
CODERE LUXEMBOURG: S&P Assigns Prelim. 'CCC+' ICR, Outlook Neg.
S W I T Z E R L A N D
TRANSOCEAN LTD: Egan-Jones Retains CCC- Senior Unsecured Ratings
U N I T E D K I N G D O M
BELLIS FINCO: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
BRACKEN MIDCO 1: Fitch Gives 'B(EXP)' to GBP380MM PIK Toggle Notes
HARBOUR ENERGY: Fitch Gives Final 'BB' to USD500MM Unsec. Notes
JD WETHERSPOON: Egan-Jones Lowers Sr. Unsecured Ratings to CCC+
MAISON FINCO: Fitch Gives Final 'BB+' to GBP275MM Sec. Notes
NEXT PLC: Egan-Jones Hikes Senior Unsecured Ratings to BB+
VITEC GROUP: Egan-Jones Hikes Senior Unsecured Ratings to BB+
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C R O A T I A
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AGROKOR DD: Fortenova to Sell 76.03% Stake in Cibona Tower
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bne IntelIiNews reports that Croatia's Fortenova Group said it is
offering for sale a 76.03% stake in one of the most popular office
buildings in the capital Zagreb -- the Cibona Tower -- as part of
its strategy to divest non-core businesses and real estate.
Fortenova is the successor company to bankrupt food and retail
giant Agrokor.
The management of the sale of this asset is entrusted to
international real estate consultant Colliers, bne IntelIiNews
notes.
Fortenowa owns 16 of the 22 storeys of the building, in which it
has 5,905 square metres of office space, bne IntelIiNews discloses.
In March, Fortenova took back control of Slovenia's largest
retailer Mercator after its shareholders approved a swap share
deal, bne IntelIiNews recounts.
The transaction was a final step in the restructuring of former
regional food and retail giant Agrokor, which was saved from
bankruptcy in 2017 through a deal with international creditors, bne
IntelIiNews states.
Agrokor acquired Slovenia's Mercator in 2014, but in 2019, all
Agrokor assets except Mercator were transferred to Fortenova, bne
IntelIiNews recounts.
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D E N M A R K
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DFDS A/S: Egan-Jones Retains BB- Sr. Unsecured Debt Ratings
-----------------------------------------------------------
Egan-Jones Ratings Company, on October 6, 2021, maintained its
'BB-' foreign currency and local currency senior unsecured ratings
on debt issued by DFDS A/S.
Headquartered in Copenhagen, Denmark, DFDS A/S operates focused
transport corridors combining ferry infrastructure, including port
terminals and rail connections, and logistics solutions including
door-door full/part loads for dry goods and cold chain as well as
contract logistics for select industries.
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F R A N C E
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PIXEL 2021: Fitch Assigns Final BB+(EXP) Rating on Class F Debt
---------------------------------------------------------------
Fitch Ratings has assigned Pixel 2021 expected ratings.
The assignment of final ratings is contingent on the receipt of
final documents conforming to information already received.
DEBT RATING
---- ------
Pixel 2021
A LT AAA(EXP)sf Expected Rating
B LT AA+(EXP)sf Expected Rating
C LT A+(EXP)sf Expected Rating
D LT BBB+(EXP)sf Expected Rating
E LT BBB-(EXP)sf Expected Rating
F LT BB+(EXP)sf Expected Rating
G LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Pixel 2021 is a 12-month revolving securitisation of equipment
lease receivables originated in France by BNP Paribas Lease Group
(BPLG) and granted to SMEs and other corporate debtors that have
their place of business in France. It will be the first
securitisation from BPLG. All loans bear a fixed interest rate and
are amortising with constant instalments.
KEY RATING DRIVERS
No Residual Value Risk: The portfolio comprises operating leases
(97.8%) and finance leases with purchase option from the lessees
(2.2%). Office equipment make up the majority of leased assets, in
the form of multi-function printers (61.4%). The eligibility
criteria exclude leases with a residual value (RV) greater than
EUR2 and the RV component of the lease agreements is not part of
the securitisation.
Revolving Period Risk Mitigated: The transaction has a maximum
12-month revolving period. The combination of early amortisation
triggers, short length of the revolving period, eligibility
criteria and available credit enhancement (CE) mitigate the risk
introduced by the revolving period. Fitch has also stressed the
potential decrease in the average interest rate of the portfolio as
a consequence of the replenishment of the portfolio.
Hybrid Pro-Rata Redemption: The notes are paid based on their
target subordination ratios (as percentages of the performing and
delinquent portfolio balance) during the amortisation period. The
subordination ratio for each class is equal to its initial CE,
which means all the notes amortise pro rata if no sequential
amortisation event occurs and there is no principal deficiency
ledger in debit.
No Liquidity Protection for Junior Notes: The class A to D notes
benefit from a liquidity reserve funded at closing, which in
Fitch's view protects the transaction against a disruption in the
collection process. The class E and F notes do not have access to
this. Fitch believes that the daily transfers from the servicer's
accounts to a specially dedicated account held by an eligible
entity mitigate payment interruption risk for the junior notes at
their current ratings. However, the class E and F notes' ratings
will not be upgraded above the 'Asf' category.
Maintenance-related Risk Mitigated: BPLG is responsible for
providing equipment maintenance to about 16% of the portfolio by
coordinating a network of third-party repairers. Fitch understands
that the non-provision of maintenance services by BPLG could make
the lease agreements void. However, Fitch believes that the need to
post a reserve upon a downgrade of an eligible maintenance reserve
guarantor mitigates this risk.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Expected impact on the notes' rating of increased defaults (class
A/B/C/D/E/F):
-- Increase base case defaults by 10%:
'AAAsf'/'AA+sf'/'A+sf'/'BBB+sf'/'BBB-sf'/'BBsf'
-- Increase base case defaults by 25%:
'AAAsf'/'AAsf'/'Asf'/'BBBsf'/'BB+sf'/'BBsf'
-- Increase base case defaults by 50%: 'AAAsf'/'A+sf'/'A-
sf'/'BBB-sf'/'BBsf'/'B+sf'
Expected impact on the notes' rating of decreased recoveries (class
A/B/C/D/E/F):
-- Reduce base case recovery by 10%:
'AAAsf'/'AA+sf'/'A+sf'/'BBB+sf'/'BBB-sf'/'BBsf'
-- Reduce base case recovery by 25%:
'AAAsf'/'AA+sf'/'Asf'/'BBBsf'/'BB+sf'/'BB-sf'
-- Reduce base case recovery by 50%: 'AAAsf'/'AA+sf'/'A-sf'/'BBB-
sf'/'BB-sf'/'CCCsf'
Expected impact on the notes' rating of increased defaults and
decreased recoveries (class A/B/C/D/E/F):
-- Increase base case defaults by 10%, reduce recovery rate by
10%: 'AAAsf'/'AA+sf'/'Asf'/'BBBsf'/'BB+sf'/'BBsf'
-- Increase base case defaults by 25%, reduce recovery rate by
25%: 'AAAsf'/'AA-sf'/'A-sf'/'BBB-sf'/'BBsf'/'B-sf'
-- Increase base case defaults by 50%, reduce recovery rate by
10%: 'AA+sf'/'Asf'/'BBB-sf'/'B+sf'/'NR'/'NR'
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Expected impact on the notes' rating of decreased defaults and
increased recoveries (class A/B/C/D/E/F):
-- Decrease base case defaults by 10%, increase recovery rate by
10%:'AAAsf'/'AAAsf'/'A+sf' /'Asf'/'BBB+sf'/'BBBsf'
-- Decrease base case defaults by 25%, increase recovery rate by
25%:'AAAsf'/'AAAsf'/'AAsf' /'A+sf'/'Asf'/'BBB+sf'
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Fitch reviewed the results of a third party assessment conducted on
the asset portfolio information, and concluded that there were no
findings that affected the rating analysis.
Fitch conducted a review of a small targeted sample of the
originator's origination files and found the information contained
in the reviewed files to be adequately consistent with the
originator's policies and practices and the other information
provided to the agency about the asset portfolio.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
PIXEL 2021: S&P Assigns Prelim. B-(sf) Rating on Class F Notes
--------------------------------------------------------------
S&P Global Ratings has assigned its preliminary credit ratings to
the class A to F-Dfrd floating-rate notes issued by Pixel 2021, a
French equipment lease transaction originated by BNP Paribas Lease
Group SA. At closing, the issuer will also issue unrated
asset-backed fixed-rate class G-Dfrd notes.
BNP Paribas Lease Group S.A. is a fully owned subsidiary of BNP
Paribas Leasing Solutions Ltd., a leading European provider of
financing, leasing, renting, and remarketing of professional
equipment services. BNP Paribas Lease Group operates primarily in
France, but has branches and subsidiaries across Europe. BNP
Paribas Lease Group is controlled and supported by BNP Paribas
S.A., a leading global financial institution.
The transaction securitizes lease receivables arising from the sale
of technological assets (office, IT, and telecom equipment, as well
as healthcare and specialist technology) to small and medium
enterprises and other corporate debtors that their place of
business in France. There will be no residual value in this
transaction.
The transaction will be revolving for 12 months. S&P has considered
the overall portfolio limits as the portfolio characteristics can
change during this period.
The assets will pay a monthly or quarterly fixed interest rate, and
the rated notes pay three-month Euro Interbank Offered Rate
(EURIBOR) plus a margin subject to a floor of zero. The rated notes
will benefit from two interest rate swaps which, in S&P's opinion,
will mitigate the risk of potential interest rate mismatches
between the fixed-rate assets and floating-rate liabilities.
A combination of note subordination and excess spread provides
credit enhancement for the rated notes. A reserve will provide
liquidity support to the class A to D-Dfrd notes.
The transaction has a split waterfall, with a principal and
interest priority of payments. However, principal can be diverted
to pay senior fees and interest if insufficient funds are
available. Furthermore, the default-based principal deficiency
ledger mechanism will capture excess spread.
According to the transaction's terms and conditions, interest can
be deferred on any class of notes except for the most-senior,
without triggering an early amortization event. Our preliminary
rating on the class A notes addresses the timely payment of
interest and ultimate payment of principal, while our preliminary
ratings on the class B-Dfrd to F-Dfrd address the ultimate payment
of interest and principal no later than the legal final maturity
date.
The notes will amortize pro rata, unless one of the sequential
amortization events occurs. From that moment, the transaction will
switch permanently to sequential amortization.
S&P said, "Our rating analysis considers a transaction's potential
exposure to ESG credit factors. In our view, the transaction has
high exposure to governance credit factors given the revolving
collateral pool and the originator's more active role over the
transaction's life, exposing investors to the risk of loosening
underwriting standards or potential adverse selection. We have
considered this risk to be limited given the short revolving
period, the strict eligibility criteria, and the stop revolving
events, and by assuming a lower interest rate in the portfolio.
"The class F-Dfrd notes are not able to withstand our stresses at
the 'B' rating. We believe the repayment of this class does not
depend on favorable conditions, as in a steady state scenario the
issuer would be able to meet its obligations under this class. We
have therefore assigned our preliminary 'B-' rating in line with
our criteria.
"Our preliminary ratings are not constrained by the application of
our sovereign risk criteria for structured finance transactions or
our counterparty risk criteria. The application of our operational
risk criteria does not cap the preliminary ratings in this
transaction.
"The issuer is a French fonds commun de titrisation (FCT), which we
consider to be bankruptcy remote."
Preliminary Ratings
CLASS PRELIMINARY RATING* AMOUNT (MIL. EUR)
A AAA (sf) TBD
B-Dfrd AA- (sf) TBD
C-Dfrd A- (sf) TBD
D-Dfrd BBB- (sf) TBD
E-Dfrd BB- (sf) TBD
F-Dfrd B- (sf) TBD
G-Dfrd NR TBD
*S&P's preliminary rating on the class A notes addresses the timely
payment of interest and ultimate payment of principal, while our
preliminary ratings on the class B-Dfrd to F-Dfrd notes address the
ultimate payment of interest and principal no later than the legal
final maturity date.
TBD--To be determined.
NR--Not rated.
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G E R M A N Y
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FLENDER INT'L: Fitch Lowers LT IDR to 'B+', Outlook Stable
----------------------------------------------------------
Fitch Ratings has downgraded Flender International GmbH's (the
parent company of Flender GmbH) Long-Term Issuer Default Rating
(IDR) to 'B+' from 'BB-'. The Outlook is Stable. Fitch has also
downgraded Flender's existing senior secured term loan to
'BB-'/'RR3' from 'BB+'/'RR2'.
The rating action follows Flender's plan to upsize the company's
existing term loan B (TLB) by EUR275 million, and use the proceeds
for extraordinary shareholder returns totaling EUR325 million.
Fitch forecasts that the upsizing of the loan will slow down its
deleveraging path towards the 'BB' rating median in Fitch's
Navigator, which was its previous expectation when assigning the
first-time ratings. Fitch expects Flender to maintain FFO gross
leverage of around 5.5x in its four-year forecast period, which is
more in line with a 'B' rating category in Fitch's Diversified
Industrials Navigator.
KEY RATING DRIVERS
Modest Capital Structure: Despite management's revised business
plan and defined new cost savings totaling EUR75 million p.a. until
2025, Fitch expects Flender's operational cash generation and
profitability to be stable, notwithstanding possible price
pressures in the market. In the absence of the new business plan
and significant cost cuts, Fitch expects Flender's FFO leverage
metrics to be around 5.0x-5.5x in Fitch's four-year forecast
period, adjusted for its assumptions for intra-year working capital
needs. This leverage metric is more commensurate with a 'b' rating
median in Fitch's navigator of 6x.
Upside to Fitch's Assumptions: Market-share gains and geographic
expansion could improve profitability, where market dynamics are
already supporting revenue growth strongly. Nevertheless, Fitch
notes that Flender currently has no record of these gains and
increase in profitability, and maintains its profitability
assumptions broadly unchanged since its last rating review.
Niche Business Supports Profitability: Flender's profitability is
strong for the rating, with EBIT and FFO margins around 8% over the
next four years. This is in line with investment-grade medians in
Fitch's navigator, and is higher than that of wind original
equipment manufacturers (OEMs) that often have more volatile
margins driven by cost overruns in sizeable projects.
These assumptions already incorporate recent stress coming from raw
material and logistics costs, and Fitch's expectations of continued
pricing pressure until end-2023, despite increased demand in the
market. Fitch believes that Flender's flexible cost base and
niche-supplier position will continue supporting profitability in
the medium term. However, Fitch expects competition and
consolidation in the wind market, along with cyclical downturns in
industrial markets to continue, hindering further margin
expansion.
Increasing Working Capital Needs: Fitch expects working capital
needs of Flender to increase in 2021, burdened by one-off charges
that are mainly related to its carve-out from Siemens. This will
drive free cash flow (FCF) margin to -1% for the year; however, it
does not change Fitch's expectation of a normalised FCF margin of
around 2.5% through the cycle. This is despite Fitch's more
conservative profitability assumptions versus management's, and
increased capex plans that will diversify Flender's manufacturing
footprint. Similar to its profitability, Fitch views Flender's FCF
generation as being in line with higher rated peers' and the 'BBB'
rating median in Fitch's navigator.
Limited Business Diversification: Flender has limited product
diversification as a gearbox and generator manufacturer, and is
focused on the overall wind industry (62% of revenue in financial
year to September 2020). However, Fitch believes that this risk is
somewhat mitigated by the strong service business that generates
around 20% of Flender's revenue. Flender has good geographic
diversification that matches higher-rated peers', with EMEA and
Americas generating 57% of revenue.
Customer Concentration in Wind OEMs: Flender has some customer
concentration around major wind OEMs, reflecting industry dynamics.
This is similar to auto suppliers and not necessarily a credit
weakness. However, as a manufacturer that is focused on a single
part of the manufacturing process, Fitch views Flender's business
profile as limited compared with peers'.
Scale and Market Leadership: Technological capabilities and the
scale to keep up with the pricing environment are key credit
considerations as tenders become more competitive. Fitch believes
that Flender is one of the few companies whose compound annual
growth may exceed those of small- to medium-sized market peers.
Flender benefits from economies of scale and competes in a
challenging pricing environment. However, in-house OEM production
and Chinese producers remain a major competitive threat for
suppliers in the long term.
Moderate Barriers to Entry: Technology and Flender's leading market
shares act as moderate barriers to entry. Gearboxes are a critical
component of wind towers, and reliability is very important given
their impact on downtimes due to the difficulty of access and cost
increases. Nevertheless, Flender's R&D spend at under 2% of revenue
does not match higher-rated OEM peers', and is in line with the
'b'/'bb' rating medians in Fitch's navigator.
Service Revenue Balances Risks: Services and aftermarket revenue
remain an important consideration for diversified industrials and
capital good companies, as a high portion of revenue generated by
the service business could offset the cyclicality of some
end-markets and high exposure to the wind industry. Flender's
service activities are also less capital-intensive than
manufacturing, which supports profitability.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
DERIVATION SUMMARY
Fitch views Flender as a predominantly diversified industrials
group, albeit with a strong focus on wind market, which constrains
its business profile similar to Siemens Gamesa (BBB-/Negative) and
Vestas. Although wind is viewed as a sector with favourable growth
trends, increased competition and political trends could put
pressure on profitability and growth.
Compared with higher rated peers', Flender's product
diversification is also limited, as the company produces a single
part in the manufacturing process. However, this risk is partially
mitigated by Flender's sizeable market share as one of few gearbox
suppliers in the world that can achieve economies of scale while
maintaining product quality. Services at around 17% of revenues are
also a buffer against cyclical downturns, and map to a 'bb' rating
median in Fitch's navigator.
Flender's capital structure is modest, with FFO net leverage
forecast to be around 5.5x in the short term, which maps to a 'b'
rating median in Fitch's navigator. This is significantly higher
than investment-grade peers', and that of sizeable wind OEMs, which
operate with net cash positions through the cycle. However,
Flender's EBIT and FFO margins of around 8% are strong, matching to
a 'bbb' rating median and supporting FCF generation that matches
the aforementioned peers'.
KEY ASSUMPTIONS
-- Revenue increasing by low single digits in 2021-2022,
following by higher single digits in 2023-2024 on the back of
order backlog;
-- EBITDA margin steadily increasing to around 12.5% by 2024 from
10.5% in 2020;
-- Capex at around EUR100 million over 2021-2024;
-- Exceptional dividends of EUR325 million paid in 2022.
Key Recovery Rating Assumptions:
-- The recovery analysis assumes that Flender would be considered
a going-concern (GC) in bankruptcy and that it would be
reorganised rather than liquidated.
-- Fitch's GC value available for creditor claims is estimated at
about EUR1.1 billion, assuming GC EBITDA of EUR200 million. At
this level of EBITDA, post restructuring, the company's FCF
would be mildly negative. The implied FFO gross leverage would
exceed 8.0x, implying a barely sustainable capital structure.
-- A 10% administrative claim.
-- An enterprise value (EV) multiple of 5.0x EBITDA is applied to
the GC EBITDA to calculate a post-reorganisation EV in line
with the average of Fitch's existing distressed multiples
distribution for diversified industrials companies in the
wider 'B' category.
-- Fitch estimates the total amount of senior debt claims at
EUR1,470 million, which includes an EUR170 million senior
secured revolving credit facility (RCF), and the EUR1,320
million senior secured TLB.
-- The allocation of value in the liability waterfall results in
recovery corresponding to 'RR3' for the TLB.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- FFO gross leverage below 5.5x (B median);
-- Increased product and end-market diversification;
-- Increase of service revenues to above 25% of total revenues.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- FFO gross leverage maintained above 6.5x;
-- FCF margin below 1% on a sustained basis;
-- Aggressive shareholder friendly policies, or acquisitions
leading to further increase in leverage.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Flender's liquidity is sufficient, supported by
an EUR150 million revolving credit facility, which is expected to
be EUR170 million pro-forma for upsizing, and by an expected FCF
margin of around 3% in the medium term. This covers Fitch's
assumption of EUR100 million intra-year working capital needs and
interest payments. Potential syndicated debt is expected to be
bullet maturities and beyond the scope of Fitch's four-year rating
case.
ISSUER PROFILE
Flender is a market leader in drive technology with a comprehensive
product and service portfolio of gearboxes, couplings and
generators for a broad range of industries, with a strong position
in wind. It has a global sales network with a footprint in 35
countries, including 11 major production and assembly facilities,
with a significant footprint in low-cost countries such as China.
OQ CHEMICALS: S&P Alters Outlook to Positive & Affirms 'B-' LT ICR
------------------------------------------------------------------
S&P Global Ratings revised its outlook on OQ Chemicals
International Holding GmbH to positive from stable and affirmed its
'B-' long-term issuer credit ratings on OQ Chemicals.
The outlook revision mirrors that on the sovereign rating.
S&P Global Ratings recently revised its outlook on Oman to positive
from stable and affirmed the 'B+' long-term sovereign credit
rating. OQ Chemicals is linked to Oman through its parent company
OQ S.A.O.C. (previously Oman Oil Co.), which is wholly owned by the
government of Oman. S&P continues to consider OQ Chemicals a
moderately strategic subsidiary and strategic investment of OQ. As
a result, S&P caps its rating on the company at the group credit
profile.
Despite swift deleveraging in 2021 due to a strong rebound in oil
and gas prices, OQ group still lacks a track record of sustainably
lower leverage and at least neutral free operating cash flow
(FOCF).Following OQ's merger with Oman Oil Refineries and Petroleum
Industries Co. (ORPIC) in 2019, it became a vertically integrated
national oil and gas company, covering the entire hydrocarbon value
chain. Although the ORPIC consolidation resulted in a significant
expansion of OQ's asset and revenue base, as well as stronger
diversification toward downstream activities, it also considerably
increased the group's leverage. Furthermore, operating performance
was hampered and leverage surged in 2020 due to the material
decline in oil prices and lower market demand induced by COVID-19
pandemic. S&P now expects a swift deleveraging in 2021, mainly
driven by the higher-than-expected increase in oil and gas prices,
volume recovery, and much higher refinery margins this year.
However, FOCF is likely to remain negative in 2021 due to high
capital expenditure (capex). The company has communicated that it
is focusing on deleveraging the balance sheet to a more sustainable
capital structure, which might be supported by disposal of noncore
and certain core assets. There is uncertainty about the scope and
timing of potential asset disposals in addition to the typical
execution risk. A track record still needs to be built in balancing
medium-to-long-term growth targets to fulfill its government
mandate with significant capital requirements and its short-term
target to deleverage and turn FOCF positive.
OQ Chemicals' stand-alone credit quality remains stronger than that
of the OQ group. Growth in key end-user markets, such as auto or
construction, as well as customers' restocking behavior, which is
further exacerbated by rising oil prices, led to very strong demand
and an increase in volumes and prices across all regions in
first-half 2021. During the period, sales volume increased 24.6%
and revenue 54.7% to EUR772.8 million. S&P said, "As a result, our
adjusted EBITDA almost tripled to EUR152.6 million from EUR56.3
million in first-half 2020. Leverage also improved swiftly to 4.1x
adjusted debt to EBITDA as of June 30, 2021, from 7.1x at year-end
2020. Given the stronger-than-expected performance so far in 2021,
we have revised up our forecast. We now expect EBITDA will rise to
EUR260 million-EUR300 million (EUR227 million in the 12 months to
June 30, 2021) from EUR130 million in 2020 and leverage will
improve to clearly below 4x in 2021. We view this as mainly driven
by extraordinarily strong market conditions, with high demand and
tight supply this year, and expect a gradual normalization from
2022, which will lead to a pick-up in leverage from next year."
Moreover, the company remains subject to the inherent cyclical
nature of the chemical industry, especially the more commoditized
intermediates business, with high volatility in raw materials costs
and selling prices.
FOCF will remain solid, with lower-than-expected capex in 2021. S&P
expects FOCF to remain solid at above EUR50 million in 2021 and the
liquidity buffer will continue to strengthen because the
significant earnings increase will offset much higher working
capital outflows amid strong topline growth. In addition, the
company is now expecting capex of about EUR65 million in 2021, much
lower than the originally planned EUR80 million. Compared with our
previous expectation of a decline in 2020, FOCF strengthened to
EUR52 million despite about EUR40 million lower adjusted EBITDA.
This was mainly due to a swift working capital release and a cut in
nonessential capex.
S&P said, "The positive outlook mirrors that on Oman and reflects
that we could raise the rating on OQ Chemicals in the next 12
months if we upgrade Oman, which will result in stronger OQ group
credit quality. We continue to assess that OQ Chemicals'
stand-alone credit quality is stronger than OQ group's, which is
also driven by the sovereign rating since OQ is a GRE.
"We could revise the outlook to stable if the outlook on Oman is
revised to stable, or if OQ group's credit profile deteriorates,
for example, due to weakening leverage or continuously negative
FOCF. We could also revise the outlook if OQ Chemicals' stand-alone
credit quality materially deteriorates, for example, due to
continuously negative FOCF, which we view as unlikely.
"We could raise the rating if OQ's group credit quality improves
due, for example, to an upgrade of Oman, or a quick rebound in OQ's
performance resulting in swift and sustainable deleveraging and at
least neutral FOCF."
=============
I R E L A N D
=============
AQUEDUCT EURO 4-2019: Fitch Assigns Final B- Rating on Cl. F Notes
------------------------------------------------------------------
Fitch Ratings has assigned Aqueduct European CLO 4-2019 DAC 's
refinancing notes final ratings and affirmed the non-refinanced
class X, E and F notes, as detailed below. The E and F notes have
been removed from Under Criteria Observation (UCO). The Rating
Outlook is Stable for all tranches.
DEBT RATING PRIOR
---- ------ -----
Aqueduct European CLO 4-2019 DAC
A XS2004871419 LT PIFsf Paid In Full AAAsf
A-R XS2387681872 LT AAAsf New Rating AAA(EXP)sf
B-1 XS2004872060 LT PIFsf Paid In Full AAsf
B-1-R XS2387682417 LT AAsf New Rating AA(EXP)sf
B-2 XS2004872730 LT PIFsf Paid In Full AAsf
B-2-R XS2387683068 LT AAsf New Rating AA(EXP)sf
C XS2004873381 LT PIFsf Paid In Full Asf
C-R XS2387683654 LT Asf New Rating A(EXP)sf
D XS2004874199 LT PIFsf Paid In Full BBB-sf
D-R XS2387684207 LT BBB-sf New Rating BBB-(EXP)sf
E XS2004874512 LT BBsf Affirmed BBsf
F XS2004875758 LT B-sf Affirmed B-sf
X XS2004871336 LT AAAsf Affirmed AAAsf
TRANSACTION SUMMARY
Aqueduct European CLO 4-2019 DAC is a cash flow collateralised loan
obligation (CLO) actively managed by HPS Investment Partners CLO
(UK) LLP. The reinvestment period is scheduled to end in January
2024. At closing of the refinance, the class A-R to D-R notes were
issued and the proceeds used to refinance the existing notes. The
class E, F and the subordinated notes were not refinanced.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors in the 'B'/'B-' category. The
Fitch weighted average rating factor (WARF) of the current
portfolio is 25.02.
High Recovery Expectations (Positive): Over 90% of the portfolio
comprises senior secured obligations. Fitch views the recovery
prospects for these assets as more favourable than for second-lien,
unsecured and mezzanine assets. The Fitch weighted average recovery
rate (WARR) of the portfolio is 64.4%.
Diversified Portfolio (Positive): The transaction has one matrix
with a top-10 obligor limit and maximum fixed-rate asset limit at
20% and 10%, respectively. The portfolio is more diversified with
169 issuers than the transaction's stressed portfolio of 120
issuers modelled. The transaction also includes various
concentration limits, including the maximum exposure to the
three-largest Fitch-defined industries in the portfolio at 40%.
These covenants ensure that the asset portfolio will not be exposed
to excessive concentration.
Portfolio Management (Neutral): The transaction has a 2.25-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. The weighted average life
covenant has been extended by 12 months to 7.25 years and the
matrix was updated concurrently at closing. Fitch's analysis is
based on a stressed-case portfolio with the aim of testing the
robustness of the transaction's structure against its covenants and
portfolio guidelines.
Cash Flow Analysis (Neutral): The WAL used for the transaction's
stressed-case portfolio and matrices analysis is 12 months less
than the WAL covenant, to account for structural and reinvestment
conditions post-reinvestment period, including the
over-collateralisation (OC) test and the Fitch 'CCC' limitation
passing post reinvestment, among others. This ultimately reduces
the maximum possible risk horizon of the portfolio when combined
with loan pre-payment expectations.
Affirmation of the Existing Notes: Class X, E and F notes have been
affirmed at their current ratings and the class E and F notes
removed from UCO. The affirmation reflects the stable performance
of the transaction since the last rating action (excluding the UCO
action) on 19 February 2021. In addition, the class X and E notes
are at the model-implied ratings based on the updated matrix. The
class F notes' 'B-sf' rating reflects a 'limited margin of safety',
in line with Fitch's definition of the rating, and under the actual
portfolio analysis also passes the rating default rate (RDR) at
'Bsf', ensuring a minimum cushion at the 'B-sf' rating.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A 25% increase of the mean RDR across all ratings and a 25%
decrease of the recovery rate (RRR) across all ratings would
result in downgrades of up to five notches cross the
structure.
-- Downgrades may occur if the build-up of the notes' credit
enhancement following amortisation does not compensate for a
large loss expectation than initially assumed due to
unexpected high levels of default and portfolio deterioration.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings would result in an
upgrade of no more than three notches across the structure,
apart from the class X and A-R notes, which are already at the
highest rating on Fitch's scale and cannot be upgraded.
-- After the end of the reinvestment period, upgrades may occur
on better-than-expected portfolio credit quality and deal
performance, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organizations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ARBOUR CLO VIII: Fitch Assigns Final B- Rating on Class F-R Notes
-----------------------------------------------------------------
Fitch Ratings has assigned Arbour CLO VIII DAC's refinancing notes
final ratings.
DEBT RATING PRIOR
---- ------ -----
Arbour CLO VIII DAC
A XS2207860995 LT PIFsf Paid In Full AAAsf
A-R XS2388928728 LT AAAsf New Rating AAA(EXP)sf
B-1 XS2207861613 LT PIFsf Paid In Full AAsf
B-1-R XS2388929023 LT AAsf New Rating AA(EXP)sf
B-2 XS2207862264 LT PIFsf Paid In Full AAsf
B-2-R XS2388929379 LT AAsf New Rating AA(EXP)sf
C XS2207862934 LT PIFsf Paid In Full Asf
C-R XS2388929536 LT Asf New Rating A(EXP)sf
D XS2207863585 LT PIFsf Paid In Full BBB-sf
D-R XS2388929700 LT BBB-sf New Rating BBB-(EXP)sf
E XS2207864393 LT PIFsf Paid In Full BB-sf
E-R XS2388929965 LT BB-sf New Rating BB-(EXP)sf
F-R XS2388930112 LT B-sf New Rating B-(EXP)sf
X XS2207860649 LT PIFsf Paid In Full AAAsf
X-R XS2388928561 LT AAAsf New Rating AAA(EXP)sf
TRANSACTION SUMMARY
Arbour CLO VIII DAC is a securitisation of mainly senior secured
obligations (at least 90%) with a component of corporate rescue
loans, senior unsecured, mezzanine, second-lien loans and
high-yield bonds. Net proceeds from the note issuance have been
used to redeem existing notes and buy additional assets. The
portfolio is managed by Oaktree Capital Management (Europe) LLP.
The collateralised loan obligation (CLO) envisages a 4.5-year
reinvestment period and an 8.5-year weighted average life (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors in the 'B'/'B-' category. The
Fitch weighted average rating factor (WARF) of the identified
portfolio is 25.21.
High Recovery Expectations (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is
62.87%.
Diversified Portfolio (Positive): The transaction includes two
Fitch matrices: (i) one effective at closing corresponding to the
top-10 obligor concentration limit at 21%, a fixed-rate asset limit
to 15% and an 8.5-year WAL and (ii) another one that can be
selected by the manager at any time one year after closing as long
as the portfolio balance (including defaulted obligations at their
Fitch collateral value) is above target par and corresponding to
the same limits of the previous matrix apart from a 7.5-year WAL.
The transaction also includes various concentration limits,
including a maximum exposure to the three-largest Fitch-defined
industries in the portfolio at 40%. These covenants ensure that the
asset portfolio will not be exposed to excessive concentration
Portfolio Management (Positive): The transaction has a 4.5-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Neutral): The WAL used for the transaction's
stressed-case portfolio, and matrices analysis is 12 months less
than the WAL covenant, to account for structural and reinvestment
conditions post-reinvestment period, including the
over-collateralisation test and the Fitch 'CCC' limitation test
passing post reinvestment, among others. Combined with loan
pre-payment expectations this ultimately reduces the maximum
possible risk horizon of the portfolio.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- An increase of the default rate (RDR) at all rating levels by
25% of the mean RDR and a decrease of the recovery rate (RRR)
by 25% at all rating levels will result in downgrades of no
more than four notches, depending on the notes.
-- Downgrades may occur if the build-up of credit enhancement
following amortisation does not compensate for a larger loss
expectation than initially assumed due to unexpectedly high
levels of defaults and portfolio deterioration.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A reduction of the RDR at all rating levels by 25% of the mean
RDR and an increase in the RRR by 25% at all rating levels
would result in an upgrade of up to five notches depending on
the notes, except for the class A notes, which are already at
the highest rating on Fitch's scale and cannot be upgraded.
-- After the end of the reinvestment period, upgrades may occur
on better-than-initially expected portfolio credit quality and
deal performance, leading to higher credit enhancement and
excess spread available to cover losses in the remaining
portfolio.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
BLUEMOUNTAIN EUR 2021-2: S&P Assigns Prelim. B- Rating on F Notes
-----------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to
BlueMountain EUR 2021-2 CLO DAC's class A, B-1, B-2, C, D, E, and F
notes. At closing, the issuer will issue subordinated notes.
The preliminary ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior-secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with its counterparty rating framework.
Portfolio Benchmarks
CURRENT
S&P weighted-average rating factor 2,894.98
Default rate dispersion 486.19
Weighted-average life (years) 5.60
Obligor diversity measure 115.10
Industry diversity measure 19.39
Regional diversity measure 1.34
Transaction Key Metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 1.14
Covenanted 'AAA' weighted-average recovery (%) 35.44
Covenanted weighted-average spread (%) 3.60
Covenanted weighted-average coupon (%) 5.00
Workout obligations
Under the transaction documents, the issuer can purchase workout
obligations, which are assets of an existing collateral obligation
held by the issuer offered in connection with bankruptcy, workout,
or restructuring of the obligation, to improve the related
collateral obligation's recovery value.
Workout obligations allow the issuer to participate in potential
new financing initiatives by the borrower in default. This feature
aims to mitigate the risk of other market participants taking
advantage of CLO restrictions, which typically do not allow the CLO
to participate in a defaulted entity's new financing request.
Hence, this feature increases the chance of a higher recovery for
the CLO. While the objective is positive, it can also lead to par
erosion, as additional funds will be placed with an entity that is
under distress or in default. This may cause greater volatility in
our ratings if the positive effect of the obligations does not
materialize. In our view, the presence of a bucket for workout
obligations, the restrictions on the use of interest and principal
proceeds to purchase those assets, and the limitations in
reclassifying proceeds received from those assets from principal to
interest help to mitigate the risk.
The purchase of workout obligations is not subject to the
reinvestment criteria or the eligibility criteria. The issuer may
purchase workout obligations using interest proceeds, principal
proceeds, or amounts in the collateral enhancement account. The use
of interest proceeds to purchase workout obligations is subject
to:
-- The manager determining that there are sufficient interest
proceeds to pay interest on all the rated notes on the upcoming
payment date; and
-- Following the purchase of a workout obligation, all coverage
tests must be satisfied.
The use of principal proceeds is subject to:
-- Passing par coverage tests;
-- The manager having built sufficient excess par in the
transaction so that the aggregate collateral balance is equal to or
exceeds the portfolio's reinvestment target par balance after the
reinvestment;
-- The workout obligation has a par value greater than or equal to
its purchase price.
Workout obligations that have limited deviation from the
eligibility criteria will receive collateral value credit in the
principal balance definition and for overcollateralization carrying
value purposes. To protect the transaction from par erosion, the
carrying value from any workout distributions will form part of the
issuer's principal account proceeds. The amounts above the carrying
value can be recharacterized as interest at the manager's
discretion. Workout obligations that do not meet this version of
the eligibility criteria will receive zero credit.
The cumulative exposure to workout obligations purchased with
principal is limited to 5% of the target par amount. The cumulative
exposure to workout obligations purchased with principal and
interest is limited to 10% of the target par amount.
Rating rationale
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payments. The portfolio's
reinvestment period will end approximately 4.5 years after
closing.
S&P said, "We understand that at closing the portfolio will be
well-diversified, primarily comprising broadly syndicated
speculative-grade senior-secured term loans and senior-secured
bonds. Therefore, we have conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR350 million target par
amount, the covenanted weighted-average spread (3.60%), the
reference weighted-average coupon (5.00%), and identified
portfolio's weighted-average recovery rates at each rating level.
We applied various cash flow stress scenarios, using four different
default patterns, in conjunction with different interest rate
stress scenarios for each liability rating category.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned preliminary ratings.
"Until the end of the reinvestment period on July 15, 2026, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating, and it compares that with
the current portfolio's default potential plus par losses to date.
As a result, until the end of the reinvestment period, the
collateral manager may through trading deteriorate the
transaction's current risk profile, as long as the initial ratings
are maintained.
"At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"We expect the transaction's legal structure and framework to be
bankruptcy remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our preliminary ratings
are commensurate with the available credit enhancement for the
class A to E notes. Our credit and cash flow analysis indicates
that the available credit enhancement for the class B, C, D, and E
notes could withstand stresses commensurate with higher rating
levels than those we have assigned. However, as the CLO will be in
its reinvestment phase starting from closing, during which the
transaction's credit risk profile could deteriorate, we have capped
our preliminary ratings assigned to the notes.
"For the class F notes, our credit and cash flow analysis indicates
that the available credit enhancement could withstand stresses that
are commensurate with a 'CCC' rating. However, we have applied our
'CCC' rating criteria resulting in a 'B-' rating to this class of
notes."
The one notch of ratings uplift (to 'B-') from the model generated
results (of 'CCC'), reflects several key factors, including:
-- Credit enhancement comparison: S&P noted that the available
credit enhancement for this class of notes is in the same range as
other CLOs that it rates, and that have recently been issued in
Europe.
-- Portfolio characteristics: The portfolio's average credit
quality is similar to other recent CLOs.
S&P's model generated break even default rate at the 'B-' rating
level of 26.89% (for a portfolio with a weighted-average life of
5.60 years), versus if it was to consider a long-term sustainable
default rate of 3.1% for 5.60 years, which would result in a target
default rate of 17.36%.
S&P also noted that the actual portfolio is generating higher
spreads and recoveries versus the covenanted thresholds that it has
modelled in its cash flow analysis.
S&P said, "For us to assign a rating in the 'CCC' category, we also
assessed (i) whether the tranche is vulnerable to non-payments in
the near future, (ii) if there is a one in two chances for this
note to default, and (iii) if we envision this tranche to default
in the next 12-18 months.
"Following this analysis, we consider that the available credit
enhancement for the class F notes is commensurate with the 'B-
(sf)' rating assigned.
"Taking the above factors into account and following our analysis
of the credit, cash flow, counterparty, operational, and legal
risks, we believe that our preliminary ratings are commensurate
with the available credit enhancement for all the rated classes of
notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A to E notes
to five of the 10 hypothetical scenarios we looked at in our
publication "How Credit Distress Due To COVID-19 Could Affect
European CLO Ratings," published on April 2, 2020.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
The transaction securitizes a portfolio of primarily senior-secured
leveraged loans and bonds, and it will be managed by Assured
Investment Management LLC.
Environmental, social, and governance (ESG) factors
S&P regards the exposure to ESG credit factors in the transaction
as being broadly in line with its benchmark for the sector.
Primarily due to the diversity of the assets within CLOs, the
exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets from being related to certain activities,
including, but not limited to, the following: extraction of thermal
coal, trade in hazardous chemicals, pesticides and wastes, ozone
depleting substances, endangered or protected wildlife of which the
production or trade is banned by applicable global conventions and
agreements, pornography or prostitution, tobacco or tobacco-related
products, predatory or payday lending activities, and weapons or
firearms, opioid manufacturers and distributors, revenue from the
development, maintenance production of or trade in controversial
weapons and production or trade of illegal drugs or narcotics.
Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
S&P's ESG benchmark for the sector, no specific adjustments have
been made in our rating analysis to account for any ESG-related
risks or opportunities.
Ratings List
CLASS PRELIM. PRELIM. INTEREST RATE CREDIT
RATING AMOUNT (%) ENHANCEMENT
(MIL. EUR) (%)
A AAA (sf) 210.00 3mE + 1.00 40.00
B-1 AA (sf) 27.00 3mE + 1.75 28.00
B-2 AA (sf) 15.00 2.05 28.00
C A (sf) 24.00 3mE + 2.20 21.14
D BBB- (sf) 23.00 3mE + 3.10 14.57
E BB- (sf) 16.75 3mE + 6.21 9.79
F B- (sf) 10.50 3mE + 8.84 6.79
Subordinated NR 33.00 N/A N/A
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
GTLK EUROPE: Fitch Gives 'BB+(EXP)' to New USD Guaranteed Notes
----------------------------------------------------------------
Fitch Ratings has assigned Ireland-based GTLK Europe Capital DAC's
upcoming issue of USD-denominated guaranteed notes an expected
'BB+(EXP)' rating. The final rating is contingent on the receipt of
final documents conforming to information already received.
GTLK Europe Capital is a financing special purpose entity of GTLK
Europe DAC (GTLK Europe), an Irish subsidiary of Russia-based JSC
GTLK (GTLK, BB+/Stable). GTLK Europe has been established as an
operating entity utilising the favourable tax and regulatory
regimes of Ireland for the leasing of aircraft and ships.
The notes will represent direct, unsubordinated and unsecured
obligations of GTLK Europe Capital and will benefit from
unconditional and irrevocable, joint and several guarantees from
both of GTLK and GTLK Europe.
The proceeds will be on-lent to group companies and be used mainly
for general corporate purposes, including refinancing current
outstanding borrowings.
KEY RATING DRIVERS
The notes' rating is equalised with GTLK's Long-Term
Foreign-Currency Issuer Default Rating (IDR), reflecting Fitch's
view that GTLK, if required, would have a very strong propensity to
honour the obligation under the guarantee due to its publicly
expressed commitment to do so, and potential reputational damage
from not honouring the obligation.
GTLK's Long-Term IDR at 'BB+' with Stable Outlook, which was last
affirmed in November 2020, reflects a moderate probability of
support from the Russian sovereign.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade of GTLK's Long-Term Foreign-Currency IDR will be
reflected in the notes' rating.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of GTLK's Long-Term Foreign-Currency IDR will be
reflected in the notes' rating.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The ratings of GTLK are driven by sovereign support from Russia and
linked to the Russia's IDRs. The ratings of guaranteed debt issued
by GTLK Europe and GTLK Europe Capital are linked to GTLK's
Long-Term Foreign-Currency IDR.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
PERRIGO CO: Egan-Jones Cuts Sr. Unsecured Debt Ratings to BB
------------------------------------------------------------
Egan-Jones Ratings Company, on October 4, 2021, downgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Perrigo Company PLC to BB from BB+.
Headquartered in Dublin, Ireland, Perrigo Company PLC engages in
providing over-the-counter (OTC) self-care and wellness solutions.
=========
I T A L Y
=========
ITALY: Egan-Jones Keeps BB+ Sr. Unsecured Debt Ratings
------------------------------------------------------
Egan-Jones Ratings Company, on October 4, 2021, maintained its
'BB+' foreign currency and local currency senior unsecured ratings
on debt issued by Republic of Italy.
STELLANTIS: Draws Up Reorganization Plan for Turin Industrial Hub
-----------------------------------------------------------------
Reuters reports that Stellantis was set to present on Oct. 11 to
unions at Italy's Industry Ministry a reorganization plan for its
Turin industrial hub.
The plan includes increasing the production of the Fiat 500 minicar
in the site by transferring volumes from Tychy, Poland, and
identifying a new mission for the Maserati plant in Grugliasco,
Reuters relays, citing La Repubblica's Oct. 9 report.
According to Reuters, Corriere della Sera wrote on Oct. 9, Alfa
Romeo will adopt a "built to order" approach producing cars only if
there is the final customer, to cut costs.
Alfa Romeo CEO Jean-Philippe Imparato told Italian dealers earlier
this month that the brand will introduce a new model each year to
2026, starting with the Tonale compact SUV next year, Reuters
recounts.
Stellantis' Italian plants are currently running at a 40% of their
output capacity, Il Sole 24 Ore reported on Oct. 10, citing an
estimate by FIM Cisl union, Reuters notes.
The union said on Oct. 8 that the global microchip shortage is
causing production stoppages at the company's plants in Italy that
are weighing more than the coronavirus lockdown in 2020, Reuters
relays.
The union, as cited by Reuters, said the automaker is prioritizing
Turin's Mirafiori factory, where the Fiat New 500 full-electric
minicar is built.
=================
M A C E D O N I A
=================
TOPLIFIKACIJA: Creditors Accept Adora's Offer to Acquire Plants
---------------------------------------------------------------
bne IntelliNews reports that the Assembly of Creditors of North
Macedonia's heating utility Toplifikacija, which is in bankruptcy,
accepted the offer of local construction firm Adora Engineering to
acquire Toplifikacija's heating plants East and West for EUR9.3
million, local media reported on October 8.
The purchase is part of Adora's efforts to diversify its business
activities in the last few years, bne IntelliNews states.
According to bne IntelliNews, the company owned by businessman
Vanco Cifliganec now is taking over a large part of the heating
network infrastructure in Skopje and the production of heat energy.
"The Assembly of Creditors accepted Adora's offer at the auction to
purchase the plants. Now the court should take a decision and the
company within eight days should pay the offered price and take
over the property," Toplifikacija's bankruptcy trustee, Bogoljub
Makrevski, was cited by broadcaster Telma.
A day earlier, Adora's owner Cifliganec said in a statement that
the purchasing of the heating plants was made with the aim of
keeping the business "in domestic hands", bne IntelliNews notes.
"It is also important to know that although the assets of the
heating plants East and West are estimated at EUR17 million, they
have a book value of about EUR8 million," bne IntelliNews quotes
Mr. Cifliganec as saying.
The auction was organized by Toplifikacija's trustee with an
initial price of only EUR165,000, bne IntelliNews discloses. Adora
placed the sole offer of EUR9.27 million with all taxes included,
bne IntelliNews states.
Toplifikacija's total assets are estimated at EUR30 million,
according to bne IntelliNews.
Toplifikacija has been in bankruptcy since 2018, bne IntelliNews
notes. The acquired business will operate as a separate legal
entity under the name Adora Energy Solutions, bne IntelliNews
says.
===================
M O N T E N E G R O
===================
MONTENEGRO AIRLINES: To Lease Minibuses to Generate Revenue
-----------------------------------------------------------
bne IntelliNews, citing Ex-Yu Aviation, reports that bankrupt air
carrier Montenegro Airlines will lease minibuses as part of the
trustee's efforts to generate revenue and increase the bankruptcy's
estate.
In December, the government decided to close indebted Montenegro
Airlines and to set up a new flag carrier, Air Montenegro, bne
IntelliNews recounts.
After stopping all operations at the end of 2020, the indebted air
carrier reopened its offices, operating as travel agent, bne
IntelliNews discloses. It is selling tickets, organizing transfers
for passengers and tour packages, bne IntelliNews notes. It has
also announced its intention to establish line maintenance for
Embraer 195 and Fokker 100 aircraft at Belgrade Airport after
leasing premises, bne IntelliNews states.
In May, Montenegro's commercial court ruled that the government
must pay the airports operator Aerodromi Crne Gore (ACG) a EUR9.4
million unpaid debt of Montenegro Airlines, bne IntelliNews
recounts.
Also in May, the Agency for Protection of Competition ruled that
EUR43 million state aid provided by Montenegro's previous
government under a special law to Montenegro Airlines was illegal,
bne IntelliNews relays.
=====================
N E T H E R L A N D S
=====================
STEINHOFF INT'L: Loses Bid to Appeal Ruling in Liquidation Case
---------------------------------------------------------------
Jan Cronje at Fin24 reports that the Constitutional Court has
refused Steinhoff's application for leave to appeal a ruling by a
lower court that found it has jurisdiction to hear a liquidation
case against the retailer.
Steinhoff approached South Africa's apex court on an urgent basis
in late September in a bid to stop the Western Cape High Court from
hearing an application to have it liquidated, Fin24 recounts.
The winding-up application was brought by the former owners of shoe
retailer Tekkie Town, who say Steinhoff's former CEO Markus Jooste
"duped" them into selling their business, Fin24 discloses.
Steinhoff lodged its application with Constitutional Court after
the high court ruled that it has jurisdiction to hear the
winding-up case, Fin24 relates. It has also lodged a separate
application with the Supreme Court of Appeal, Fin24 notes.
According to Fin24, in a short statement, the Constitutional Court
said it had considered Steinhoff's application for leave to appeal
directly to it and concluded it should be dismissed as it is "not
in the interests of justice to grant leave to appeal at this
stage".
Steinhoff had argued that, as an "external company" under the
Companies Act, it cannot be wound up by a South Africa court, Fin24
relays. It has also argued that the liquidation case deals with
new legal territory that has not yet been tested before a court,
Fin24 states.
But the group's arguments did not convince Western Cape High Court
Judge Hayley Slingers, who ruled the high court has the proper
authority to hear the case, Fin24 relates.
While the apex court will not hear the appeal at this stage, the
Western Cape High Court is expected to hear the application for
leave to appeal this week, Fin24 states.
Meanwhile, as Fin24 reported on Oct. 14, the Western Cape High
Court is only expected to only hear a separate application by
Steinhoff to approve its EUR1.4 billion (ZAR25 billion) settlement
plan in January next year, Fin24 notes.
Steinhoff International Holdings NV's registered office is located
in Amsterdam, Netherlands.
===============
P O R T U G A L
===============
LUSITANO MORTGAGES 5: Fitch Affirms CC Rating on Class D Debt
-------------------------------------------------------------
Fitch Ratings has upgraded eight tranches of three Lusitano RMBS
transactions, and removed two tranches from Rating Watch Positive
(RWP).
DEBT RATING PRIOR
---- ------ -----
Lusitano Mortgages No.5 plc
Class A XS0268642161 LT Asf Upgrade BBsf
Class B XS0268642831 LT BBB-sf Upgrade BBsf
Class C XS0268643649 LT Bsf Affirmed Bsf
Class D XS0268644886 LT CCsf Affirmed CCsf
Lusitano Mortgages No.6 Limited
Class A XS0312981649 LT AAsf Upgrade Asf
Class B XS0312982290 LT Asf Upgrade BBB-sf
Class C XS0312982530 LT BB-sf Upgrade Bsf
Class D XS0312982704 LT CCCsf Affirmed CCCsf
Class E XS0312983009 LT CCsf Affirmed CCsf
Lusitano Mortgages No.4 Plc
Class A XS0230694233 LT A+sf Upgrade BBsf
Class B XS0230694589 LT BBB+sf Upgrade BBsf
Class C XS0230695552 LT BB+sf Upgrade BBsf
Class D XS0230696360 LT CCCsf Affirmed CCCsf
TRANSACTION SUMMARY
The static Portuguese RMBS transactions comprise residential
mortgages originated and serviced by Novo Banco, S.A.
KEY RATING DRIVERS
Performance Outlook, Additional Stresses Removed: The upgrades and
removal from RWP reflect the removal of the additional stresses in
relation to the coronavirus outbreak, and the broadly stable asset
performance outlook. This is driven by the low share of loans in
arrears over 90 days (ranging between 0.3% and 0.5% of the current
portfolio balance as of the latest reporting dates), the ample
seasoning of the portfolios of around 15 years, and the improved
macro-economic outlook for Portugal, as described in Fitch's latest
Global Economic Outlook. The cumulative default rate ranges between
7.4% and 11.6% for the transactions, higher than the market average
but stabilising over the last three years.
The rating actions also reflect Fitch's view that the notes are
sufficiently protected by credit enhancement (CE) to absorb the
projected losses commensurate with the current and higher rating
scenarios. Fitch expects structural CE to increase in the short to
medium term for Lusitano 6 given the prevailing sequential
amortisation, while Fitch expects CE protection to remain broadly
stable for Lusitano 4 and 5 considering the pro-rata amortisation
of the notes.
Lusitano 4 and 5 PIR Cap Removed: Fitch considers payment
interruption risk in Lusitano 4 and 5 is mitigated in the event of
a servicer disruption. Fitch deems the available liqudity mitigants
(i.e. a cash reserve that could be depleted by losses) as
sufficient to cover stressed senior fees, net swap payments and
senior note interest due amounts while an alternative servicer
arrangement was implemented. Other mitigants include the sweep of
cash collections from the servicer into the SPV account bank every
two days, and the fact that principal collections on the portfolio
can be used to cover any interest shortfalls under certain
circumstances.
Reserve fund balances were volatile in the past, but have recovered
and been at target balance since September 2017 for Lusitano 4 and
January 2021 for Lusitano 5. Fitch expects the reserve funds will
remain sufficiently funded in the medium term, based on the
transactions' current performance. As a result, Fitch has removed
the 'BBsf' rating cap on the class A notes of Lusitano 4 and 5, in
line with its Structured Finance & Covered Bonds Counterparty
Rating Criteria.
Updated Interest Rate Stresses: The rating actions capture Fitch's
updated Structured Finance and Covered Bonds Interest Rate Stresses
Rating Criteria dated 20 September 2021. The affirmation of
Lusitano 5's class C notes is partly driven by the application of
the new interest rate stresses (for more information, see 'Fitch
Places 13 EMEA RMBS Ratings UCO; Maintains 3 Ratings UCO' dated 24
September 2021).
Payment Holidays Above Market Average: During the Covid-19 crisis,
the originator granted payment holidays to some borrowers that
could include both principal and interest components. The take up
rates on payment holidays were around 15% and 20% of the portfolio
balances as of June 2021, larger than the estimated national
average of 11%, but Fitch expects them to decrease rapidly as the
moratoria schemes are expiring.
Fitch anticipates the performance of payment holidays loans to be
weaker than standard loans as some borrowers could face a payment
shock when the moratoria expire. Fitch has therefore captured a
sensitivity run linked to increased portfolio default rate
expectation and reduced recoveries within Fitch's rating analysis.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- For Lusitano 6's class A notes, a downgrade of Portugal's
Long-Term Issuer Default Rating (IDR) that could decrease the
maximum achievable rating for Portuguese structured finance
transactions. This is because these notes are rated at the
maximum achievable rating, six notches above the sovereign
IDR.
-- Long-term asset performance deterioration such as increased
delinquencies or larger defaults, which could be driven by
changes to macroeconomic conditions, interest-rate increases
or borrower behaviour.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Lusitano 6's class A notes are rated at the highest level on
Fitch's scale and cannot be upgraded.
-- An upgrade of Portugal's Long-Term IDR that could increase the
maximum achievable rating for Portuguese structured finance
transactions, provided that CE is commensurate with higher
rating stresses.
-- Increased CE as the transactions deleverage to fully
compensate for the credit losses and cash flow stresses that
are commensurate with higher rating scenarios.
-- A material reduction in payment holiday loans, which are able
to resume contractual payments terms without falling into
arrears.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pools and the transactions. Fitch has not reviewed the results of
any third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring. Fitch did not undertake a review of the information
provided about the underlying asset pools ahead of the
transactions' initial closing. The subsequent performance of the
transactions over the years is consistent with the agency's
expectations given the operating environment and Fitch is therefore
satisfied that the asset pool information relied upon for its
initial rating analysis was adequately reliable. Overall, Fitch's
assessment of the information relied upon for the agency's rating
analysis according to its applicable rating methodologies indicates
that it is adequately reliable.
ESG CONSIDERATIONS
Fitch has revised the ESG relevance score to '3' from '5' for
Lusitano 4 and 5, reflecting the updated payment interruption risk
analysis as being sufficiently mitigated by structural provisions.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
=============
R O M A N I A
=============
ONIX ASIGURARI: Fitch Affirms 'BB-' IDR, Outlook Stable
-------------------------------------------------------
Fitch Ratings has affirmed ONIX Asigurari S.A.'s (ONIX) Insurer
Financial Strength (IFS) Rating at 'BB' and Issuer Default Rating
(IDR) at 'BB-'. The Outlooks are Stable.
KEY RATING DRIVERS
The ratings of ONIX reflect its small scale and franchise compared
with larger, more diversified insurers' and its weak
risk-mitigation policies. These weaknesses are offset by ONIX's
sound capitalisation and strong financial performance.
ONIX is a small Romanian non-life insurer that operates
predominantly in Spain and, to a lesser extent, in Italy, Poland,
Portugal and Greece. It focuses largely on surety business for
medium-sized to large corporations operating predominantly in the
construction and energy industries. Fitch assesses ONIX's business
profile as 'Least Favourable' than larger, more diversified peers'
due to the company's small size and limited diversification by
product. In 2020, ONIX had EUR23 million in equity (2019: EUR17
million) and wrote EUR32 million in gross premiums (GWP; 2019:
EUR12 million). Fitch assesses ONIX's business profile as a rating
constraint.
ONIX is not reliant on reinsurance protection and ceded only 4% of
GWP in 2020. While this high retention supports its strong
profitability, it could expose the company's capital to external
shocks. Fitch sees ONIX's low use of reinsurance as
credit-negative.
ONIX's sound capitalisation is reflected in a good credit
exposure-to-equity score. ONIX's Solvency II coverage ratio,
calculated under the standard formula, was strong at 243% at
end-2020, up from 151% at end-2019, due to the company not
distributing dividends as per the local regulator's recommendation.
However, due to ONIX's small size and low reinsurance coverage
despite a significantly increased exposure in 2020, capital remains
vulnerable to external shocks. ONIX has no financial debt, which
Fitch views as credit-positive.
Fitch views ONIX's profitability as strong. The company has a
record of very profitable underwriting results, due to effective
underwriting discipline; its combined ratio was a very strong 58%
at end-2020 (2019: 60%). Its net income return-on-equity (ROE) was
also very strong at 37% in 2020 (2019: 27%). Fitch expects ONIX to
continue to report very strong technical results. However, due to
its small scale, net income can be volatile.
Fitch views ONIX's investment and liquidity risk as moderate for
the ratings. Exposure to Romanian sovereign debt (BBB-/Negative)
was high at 1.1x shareholders' equity at end-2020 (2019: 1.0x). The
company holds a highly liquid portfolio, approximately half of
which is invested in cash or term deposits with Spanish and
Romanian banks, some of which are small-scale and with a modest
franchise. Fitch considers term deposits held with small-scale
banks in Fitch's calculation of the risky assets-to-equity ratio.
As a result, ONIX's risky assets ratio, which measures the ratio of
risky assets to capital, stood at 77% at end-2020.
Fitch assesses ONIX's reserve adequacy as healthy for the ratings.
The company has a mixed history of reserve changes in the past five
years. Fitch expects ONIX to maintain adequate reserves across its
whole portfolio.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A weakening of ONIX's business profile driven, for example, by
lower premium volumes.
-- Deterioration in ONIX's capital position, as evident in a
Solvency II coverage ratio of less than 120%.
-- A two-notch downgrade of Romania's Long-Term Local-Currency
IDR is likely to lead to a one-notch downgrade of ONIX's
ratings.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- A significant improvement of ONIX's business profile through
profitable growth and higher diversification by product.
-- A strengthening in ONIX's risk-mitigation practices as evident
in, for example, greater reinsurance utilisation.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
===========
R U S S I A
===========
RUSSIAN FINANCIAL: Bank of Russia Ends Provisional Administration
-----------------------------------------------------------------
The Bank of Russia, on Oct. 19, 2021, terminated activity of the
provisional administration appointed to manage Limited Liability
Company Non-bank Credit Organization Russian Financial Society or
LLC NCO Russian Financial Society (hereinafter, NCO Russian
Financial Society).
No signs of insolvency (bankruptcy) were established as a result of
the credit institution inspection conducted by the provisional
administration.
On October 8, 2021, the Court of Arbitration of the City of Moscow
issued a ruling on the forced liquidation of NCO Russian Financial
Society.
Mikhail Storozhuk, a member of Self-regulatory Organisation Union
of Liquidators "Sozidanie" was appointed as a liquidator. Further
information on the results of the provisional administration's
activity is available on the Bank of Russia website.
The provisional administration was appointed by virtue of Bank of
Russia Order No. OD-1534, dated July 23, 2021, following the
revocation of the banking license from NCO Russian Financial
Society.
SOVCO CAPITAL: Fitch Assigns 'BB' LT IDRs, Outlook Stable
---------------------------------------------------------
Fitch Ratings has assigned Sovco Capital Partners International
Joint Stock Company (Sovco) LongTerm Foreign- and Local-Currency
IDRs of 'BB' with Stable Outlooks and a Viability Rating of 'bb'.
KEY RATING DRIVERS
Sovco is the bank holding company (holdco) for Russia-based PJSC
Sovcombank (SCB; BB+/Stable/bb+). Fitch believes that the risks of
Sovco's failure are highly correlated with the risks of failure of
SCB, which is Sovco's main operational subsidiary. This is because
of SCB's majority ownership by Sovco, the fact that both entities
are incorporated in the same jurisdiction, and the absence of any
double-leverage at the Sovco level, which at end-2020 was 99.6%
equity-funded. The Stable Outlook on Sovco's ratings mirrors that
on SCB.
Fitch rates Sovco one notch lower than SCB to capture that the
Central Bank of Russia (the CBR) does not regulate Sovco. A
regulatory focus on protection of bank creditors could give rise to
moderate risk of the holdco failing prior to the failure of its
main operational subsidiary.
Past cases of private bank resolutions in Russia suggest that any
support extended by the CBR to the senior creditors of a bank is
unlikely to be extended to creditors of its unregulated holdco.
Accordingly, Fitch believes that the CBR would be unlikely to
support Sovco, as reflected in its Support Rating of '5' and
Support Rating Floor (SRF) of 'No Floor'.
On 17 August 2021, Fitch published an Exposure Draft setting out
proposed changes to Fitch's Bank Rating Criteria. Should the final
criteria be in line with the exposure draft, Sovco's SRF would be
replaced with a Government Support Rating, which would likely be
assigned at the level of 'No Support'.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Sovco's Long-Term IDR and VR would likely be upgraded if SCB
was upgraded.
Factor that could, individually or collectively, lead to negative
rating action/downgrade:
-- Sovco's Long-Term IDR and VR would likely be downgraded if SCB
was downgraded. In addition, the notching between Sovco and
SCB may be widened, resulting in a downgrade of Sovco's
ratings, if there is significant debt issuance at the Sovco
level, resulting in a material increase of double leverage or
giving rise to significantly increased liquidity risks.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Sovco's ratings are linked SCB's ratings.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
===============
S L O V A K I A
===============
365 BANK: Fitch Gives 'BB-(EXP)' Rating to New EUR250MM SP Bonds
-----------------------------------------------------------------
Fitch Ratings has assigned 365.bank, a.s.'s (BB-/Stable) upcoming
senior preferred (SP) bonds a 'BB-(EXP)' expected long-term rating.
The bank intends to issue up to EUR250 million of SP bonds.
The assignment of a final rating is contingent on the receipt of
final documents conforming to the information already received.
KEY RATING DRIVERS
The expected long-term rating for 365.bank's senior preferred (SP)
debt is in line with its Long-Term IDR. This reflects Fitch's view
that the default risk of SP debt is equivalent to the default risk
related to the IDR and that senior obligations have average
recovery prospects in a resolution. Fitch expects the bank to use
predominantly SP debt to meet its resolution buffer requirements,
and Fitch does not expect the bank to issue and maintain senior
non-preferred (SNP) and more junior debt of more than 10% of the
resolution group's RWA.
Fitch published 365.bank's (formerly known as Postova Banka, a.s)
ratings on 13 October 2021 (see 'Fitch Publishes 365.bank's 'BB-'
IDR; Outlook Stable'). The bank's common equity Tier 1 ratio was
18.1% at end-1H21. Its capital structure was supplemented by a
small amount (EUR8 million) of outstanding subordinated debt
recognised as regulatory Tier 2 capital.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- The SP debt rating would be upgraded if 365.bank's Long-Term
IDR was upgraded.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- The SP debt rating would be downgraded if 365.bank's Long-Term
IDR was downgraded.
-- The SP debt rating would also be downgraded to one notch below
the Long-Term IDR if Fitch believes that its recovery
prospects in a resolution would fall to below average, as
would be the case, for example, if Slovakia introduces
depositor preference legislation.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
365.bank has an ESG Relevance Score of '4' for Governance Structure
due to the presence of related party lending which has a moderate
influence on its ratings.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
=========
S P A I N
=========
CODERE LUXEMBOURG: S&P Assigns Prelim. 'CCC+' ICR, Outlook Neg.
---------------------------------------------------------------
S&P Global Ratings assigned its preliminary 'CCC+' issuer credit
rating to Codere Luxembourg 2 S.a.r.l. and its preliminary 'CCC+'
issue rating and '3' recovery rating to its new money notes.
On Sept. 17, Codere S.A. launched a consent solicitation and
exchange offer with its noteholders, for the implementation of the
restructuring agreed with an ad hoc committee formed by a majority
of them in April.
The agreement, initially announced on April 22, 2021, is still
subject to approval and implementation and includes the creation of
a new holding structure, of which existing bondholders will become
95% equity holders, with existing Codere shareholders maintaining
the remaining 5%. S&P expects Codere S.A. to be liquidated over the
months following the transaction.
In addition, the agreement includes:
-- The issuance of additional senior notes, backed by original
lenders from the ad hoc committee, to bolster liquidity by about
EUR225 million. This includes EUR100 million of notes issued in
April and May of 2021 and EUR128.9 million expected to be issued
with the implementation of the agreement.
-- Amendments to the terms of Codere's existing super senior
notes, including extension of maturity to Sept. 30, 2026, and
amendment to interest, which will now include cash and payment in
kind (PIK) components. Following the transaction, the quantum of
super senior debt at Codere Luxembourg 2 is expected to be about
EUR482 million.
-- Amendments to the terms of Codere's senior notes (originally
EUR500 million and $300 million), including an extension of
maturity to Nov. 30, 2027, and an amendment to interest, which will
now include a minor cash component and a material PIK component,
split into euro and dollar tranches. The amendments establish that
part of these senior notes will be reinstated (about EUR133 million
and $81 million) and part will be exchanged into subordinated PIK
notes (EUR228 million), also due on Nov. 30, 2027. S&P notes that
although the PIK notes will sit outside the restricted group, its
adjusted metrics consolidate the PIK into its analysis, as they do
not comply with its criteria to receive equity treatment.
S&P said, "We understand that the noteholders of Codere Luxembourg
2 have until Oct. 18 to provide their consent and, if approved, the
agreement is expected to be implemented on Nov. 5. We note that if
the deal is not completed by Nov. 30, the restructuring agreement
will be considered void, unless the deadline is extended.
"Codere recently agreed to spin off its online business, which, in
our view, is credit neutral. Codere Online is expected to merge
with DD3 Acquisition Corp. II, a special purpose acquisition
company (SPAC), which will in turn be listed on the U.S. Nasdaq
stock market. The transaction values Codere Online at $350 million.
As part of the transaction, Codere will maintain between 54% and
73% ownership stake in Codere Online, depending on SPAC investor
redemptions, and continue to consolidate it. Existing Codere Online
management will continue operating the business. We understand that
Codere will be permitted to withdraw up to $30 million of any
proceeds of the Online transaction in excess of $125 million, and
we acknowledge minimum transaction proceeds will be at least $77
million. In our base case, we do not consider any additional
proceeds to Codere as part of the Online transaction, hence we view
the transaction as credit neutral. We understand that proceeds will
be used to fund marketing expenditures, technology platform
improvements, and new market entry costs.
"For 2022, we expect Codere will continue posting very weak
earnings after pandemic-related restrictions affected results well
into the third quarter of 2021. We see the situation progressively
improving, with ongoing easing of restrictions in Codere's key
markets, particularly in Argentina, Mexico, and Italy. Still, we
acknowledge the volatility embedded in the Latin American markets
and expect recovery to be very gradual over the next two years. We
expect to see limited mobility restrictions in 2022, but we expect
the company will still lag prepandemic revenue levels, with notable
capital expenditure (capex) investments, including for upcoming
license renewals in Argentina and Italy. We also expect high
"one-off" costs in relation to the proposed debt restructuring and
the Codere Online business spin-off, which reduce S&P Global
Ratings-adjusted EBITDA.
"We believe Codere's pro forma capital structure will remain
unsustainable in the medium term with a limited liquidity buffer,
despite expectations that its operating performance will
progressively improve. Despite the current proposed debt
restructuring and the additional funding expected, we believe that
Codere's pro forma capital structure will remain unsustainable in
the medium term and its liquidity and covenants could come under
pressure in the near term if the company does not markedly improve
its performance. In our view, the company's EBITDA growth prospects
are still subject to volatility and to subdued growth over the next
12-24 months, resulting in significant cash burn for the next few
years while its debt will rapidly accrue, considering the PIK
component.
"We assess Codere's liquidity as less than adequate due to our
expectations that liquidity sources might not be sufficient to
comfortably cover uses over the next 12 months. The expected
additional funding will ease Codere's liquidity pressure in the
short term, but covenant headroom under the documentation is
expected to be tight over the next 12 months. We note that Codere's
weak operating environment, together with its investment needs,
including gaming license renewals, and negative working capital,
will result in considerable cash burn over at least the next 12-24
months.
"Codere has one liquidity covenant under its senior notes
documentation that requires the company to keep a minimum of EUR40
million cash, cash equivalents, and undrawn committed financing,
tested monthly until December 2022. In our view, Codere's headroom
under its covenant over the next 12 months could be below 10%,
absent favorable operating performance and adherence to our base
case. We note that the cash at Codere Online is restricted and is
not part of the calculation for covenant purposes. We also note
that the company does not have a revolving credit facility and,
under the current debt documentation and local debt levels, it can
incur a maximum of EUR25 million additional super senior debt;
EUR75 million under the general debt basket and EUR25 million
additional non-guarantor local debt."
The lack of hedging increases the volatility of future
profitability and cash flows. S&Ps aid, "Our rating incorporates
Codere's current lack of hedging against the risk of currency
fluctuations stemming from its significant exposure to Latin
American markets. We note Codere has had a long history of
excessive debt that was exacerbated by currency fluctuations in its
Latin American markets, particularly in Argentina." Pro forma for
the restructuring, about 90% of Codere's debt will be denominated
in euros while only about 30% of EBITDA will be generated in euros.
The lack of currency hedging adds pressure on our profitability and
cash flow generation forecasts.
S&P said, "The negative outlook reflects our expectation that we
could downgrade Codere over the next 12 months if we believed the
company faced a near-term default scenario, due to operational
underperformance leading to insufficient liquidity, a distressed
debt purchase or if it implements a further debt restructuring.
Considering Codere's still relatively tight liquidity and high
leverage, we believe the company has very little room for
underperformance against our base case."
S&P could lower the ratings if it expects:
-- Profitability, cash flows, and liquidity to decline because of
operational missteps such that the company is unable to meet its
fixed costs including debt service and capital spending;
-- EBITDA cash interest coverage declines below 1.5x; and/or
-- The company undertakes a balance sheet restructuring or a
distressed debt exchange.
S&P said, "We could revise the outlook to stable if improved
business or economic conditions led the company to reduce financial
leverage to a more sustainable level, such that S&P Global
Ratings-adjusted debt to EBITDA improved and stood well below 8x.
For such a scenario to occur, we would expect notable revenue and
profitability growth, without any additional debt."
=====================
S W I T Z E R L A N D
=====================
TRANSOCEAN LTD: Egan-Jones Retains CCC- Senior Unsecured Ratings
----------------------------------------------------------------
Egan-Jones Ratings Company, on October 4, 2021, maintained its
'CCC-' foreign currency and local currency senior unsecured ratings
on debt issued by Transocean Ltd. EJR also maintained its 'C'
rating on commercial paper issued by the Company.
Headquartered in Vernier, Switzerland, Transocean Ltd. is an
offshore drilling contractor.
===========================
U N I T E D K I N G D O M
===========================
BELLIS FINCO: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed Bellis Finco plc's (ASDA) Long-Term
Issuer Default Rating (IDR) at 'BB-' with Stable Outlook, following
the addition of GBP500 million equivalent new senior secured debt.
Fitch has assigned the prospective senior secured debt tranche a
rating of 'BB+(EXP)'/'RR2' in line with existing senior secured
instruments and affirmed the existing instrument ratings.
The new GBP500 million equivalent senior secured debt will be
issued by Bellis Acquisition Company Plc and rank pari passu with
existing senior secured debt. The proceeds along with GBP262
million of balance sheet cash will be used towards the repayment of
the GBP750 million forecourts disposal bridge facility and related
fees. This follows the cancellation of the forecourts' disposal
transaction to EG Group (B-/Stable), which Fitch expected to
complete in 2H21.
The additional debt has increased ASDA's leverage above its
negative sensitivity threshold. Fitch expects funds from operations
(FFO) lease adjusted gross leverage at 5.8x in 2021, translating
into low rating headroom. However, ASDA's solid cash generation
will help reduce leverage to levels commensurate with the rating by
2022. Financial flexibility is also slightly weaker, as part of the
bridge repayment is from cash and the cancelled GBP190 million
short-term revolving credit facility has been partly replaced with
another short- term credit facility.
The IDR is supported by ASDA's market position and scale in a
resilient, but competitive UK food retail sector. The retention of
fuel forecourts, which complements ASDA's existing business, does
not change Fitch's view of ASDA's business profile. Fitch
recognises some inherent execution risks in ASDA repositioning
itself in the market, especially considering the departures in the
management team. The Stable Outlook is driven by Fitch's
expectation of steady operating and financial performance, and is
predicated on financial policies consistent with gradually
declining leverage and governance principles that adequately align
shareholders and creditors' interests.
KEY RATING DRIVERS
Reduced Rating Headroom: Fitch expects FFO adjusted gross leverage
of 5.8x in 2021 after the addition of GBP500 million new debt. This
exceeds the downgrade sensitivity of 5.5x, but Fitch expects it to
revert comfortably within sensitivities by 2022, given ASDA's solid
cash generation capabilities. Fitch expects the leverage metric to
be around 0.4x higher than under the previous rating case over the
rating horizon. Fitch's rating case reflects the potential to
deleverage by an average of around 0.5x per year, given strong cash
generation, and embedded debt amortisation.
Forecourts Retained: The retention of fuel forecourts, which
complements ASDA's other businesses, does not change Fitch's view
on the business profile. ASDA has retained around 320 petrol
filling stations that generated around GBP3 billion sales
pre-pandemic, and around GBP65 million EBITDA, as estimated by
third-party consultants. ASDA is competitive on fuel pricing and
fuel is margin dilutive to the overall group margin.
EBITDA Forecast Maintained: Fitch forecasts EBITDA of around GBP1
billion in 2021, increasing slowly thereafter. Additional EBITDA
from forecourts is somewhat offset by Fitch's assumption of slower
implementation of additional cost savings, higher rents following
the sales & leaseback transaction of ASDA's distribution assets,
and a GBP38 million IFRS16 adjustment in line with Fitch's
criteria.
Continued Strong Cash Generation: Fitch continues to expect strong
cash generation. Profitability is supported by ongoing cost-saving
initiatives that help offset the cost challenges. Profitability is
healthy (EBITDAR trending towards 6%), but below Tesco (around 7%).
Fitch projects a FFO margin of around 3% and FCF margin of around
1%. Fitch assumes that business rate relief is compensated by
Walmart (AA/Stable).
Trading Normalising: Fitch has revised up its 2021 EBITDA forecast
to around GBP1 billion amid strong 1Q21 revenue and reported
margins ahead of Fitch's previous forecast. 2Q21 performance with
2.1% like-for-like food sales decline reflects a sector-wide
slowdown as the eating out market re-opened. Online volumes have
also eased across the sector. ASDA reports that online sales remain
over 80% above 2019 levels, but declined by 10% against 2Q20.
Increased Cost-saving Execution Risk: Departures of key members of
the management team may risk the delivery of cost-saving
initiatives. Fitch recognises the addition of some highly
experienced people to the senior management team. Their actions are
essential to mitigate Fitch's perception of increased execution
risk. In particular, cost-saving initiatives are significant and
critical to deliver the price repositioning. Moreover, the strategy
to narrow the price gap with discounters and further expand the
existing price gap with other traditional grocers may not work if
competitors react to this move. Fitch has now assumed slower
additional cost saving implementation, considering the inflationary
environment.
At the same time, the EG/ASDA partnership is progressing. ASDA
announced the extension of trial sites to 33 locations by end-2021
and to 200 sites by end-2022. Synergies via partnerships on
wholesale revenue into EG convenience stores and rents from food
services are not material at GBP14 million.
Financial Policies Define Deleveraging Path: In the absence of
material scheduled debt amortisation and publicly stated financial
policies, the use of accumulated cash balances will depend on
capital-allocation decisions that are not yet fully articulated.
Fitch does not expect the repayment of Walmart's GBP500 million
instrument, which Fitch has treated as equity in line with Fitch's
criteria, at least over the next couple of years, despite a step-up
coupon clause, due to Walmart's importance to ASDA in technology.
There is currently no intention to pay dividends, but this may be
revised, for example, when net debt/ EBITDA is under 2.6x,
according to documentation.
ASDA's structurally negative working-capital position,
cash-generative business and continuation of supply-chain finance
facilities should support liquidity along with its GBP500 million
revolving credit facility (RCF) and GBP50 million short-term
committed working capital facilities. A strong freehold asset base,
valued at around GBP9.3 billion provides further financial
flexibility.
Resilient Food Retail Operations: ASDA is one of the leading food
retailers in the UK with a good brand and scale. Food retail is
resilient through economic cycles, although grocers' like-for-like
sales suffer in low inflationary periods. ASDA has lost market
share since discounters started expanding in the UK, given its
higher exposure to lower-income customers and a store base skewed
towards the North/Midlands, where discounters were directing most
of their expansion. ASDA lacks a meaningful presence in the
convenience segment, but its online channel has grown significantly
with weekly slots at around 850,000 (December 2020), below market
leader Tesco Plc (1.5 million).
Governance Under Scrutiny: Although ASDA will remain a
privately-owned company, it has some weaknesses in the planned
governance and complexity of the group structure, with a number of
planned related-party transactions, resulting in a moderate impact
on the rating. At the same time, Fitch recognises the intention to
have a diverse board with three independent members and the
progress made on this so far.
It faces execution risks on its strategic repositioning and
separation from Walmart, which requires solid implementation by
management. Moreover, given the scale of the business, Fitch views
solid financial disclosure in financial reporting an important
safeguard for creditors, as well as clarity on consistent financial
policies that favour deleveraging.
DERIVATION SUMMARY
Fitch rates ASDA using its global Food Retail Navigator. ASDA's
rating is negatively influenced by the group's smaller scale and
weaker market position compared with main food retailers in Europe,
such as Tesco plc (BBB-/Stable) and Ahold Delhaize NV (WD). ASDA
has a similar market position to Sainsbury's with operations
restricted in the UK. ASDA lacks a convenience presence, but has a
strong online contribution. ASDA benefits from healthy
profitability and strong cash generation with historical and
expected FFO margins around 3%, in line with most sector peers.
Following completion of the transaction, Fitch expects ASDA's FFO
adjusted gross leverage to trend towards 5.0x from 5.8x in 2021,
which is meaningfully higher than Tesco's (around 4.0x excluding
Tesco Bank), but below Lannis Limited (Iceland Foods)'s (B/Stable)
expected 7.0x over FY22 (year-end March), which will only gradually
reduce thereafter.
KEY ASSUMPTIONS
-- Revenue to increase by 2% in 2021, mainly driven by the
rebound in non-food and petrol revenues exhibited in 1H21, 1%
growth on average thereafter;
-- Forecourt contribution to EBITDA around GBP60 million per
year;
-- EBITDA margin at 4.2% in 2021, gradually increasing towards
5.0% by 2024;
-- Leases linked to the sale & leaseback of the distribution
assets increased to GBP78 million;
-- Capex intensity between 1.8% and 2.2% of sales in 2021 to
2024;
-- One-off costs at GBP150 million over 2021-2022 relating to
separation from Walmart;
-- No dividends or major M&A activity over the next four years.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Fitch does not anticipate an upgrade over the next two years, until
ASDA successfully executes its new strategy and delivers
cost-saving measures to maintain profitability despite cost
challenges. Positive rating momentum would also depend on
governance principles and financial disclosure being aligned with
listed peers and a commitment to conservative financial policies
favouring deleveraging leading to:
-- FFO adjusted gross leverage trending below 4.0x on a sustained
basis;
-- FFO fixed charge cover above 2.5x.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Like-for-like decline exceeding other "Big Four" competitors
especially if combined with a material drop in profitability;
-- Weakening liquidity buffer due to neutral or negative FCF
margin;
-- FFO adjusted gross leverage above 5.5x on a sustained basis;
-- FFO fixed charge cover below 2.0x.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Acceptable Liquidity Buffer: Fitch expects ASDA to have acceptable
liquidity of around GBP230 million cash (cash relating to working
capital is restricted) at the end of 2021. Financial flexibility is
tighter following the cancellation of the GBP190 million short term
RCF and use of GBP250 million cash towards repayment of forecourts
bridge facility.
Fitch believes various credit facilities provide sufficient
liquidity buffer for 1Q22, when post-Christmas trade payables,
employee bonus and tax payments are due. In addition to its GBP500
million RCF (undrawn), ASDA had around GBP50 million in committed
overdrafts and credit facilities as of June 2021. Since then ASDA
has signed a further short-term uncommitted GBP115 million
facility.
Subsequently, strong cash generation support liquidity and Fitch
does not expect drawings under its RCF at financial year-end.
However, Fitch does consider the RCF to be somewhat limited for the
size of the business and relative to peers.
Fitch's restricts GBP150 million cash from readily available cash
for working capital purposes. In addition, the company will have no
material financial debt maturing before 4.5 years. Thanks to a
healthy expected average FCF margin of around 1.5% over 2021-2024,
Fitch assumes readily available cash to subsequently accumulate to
GBP1.1 billion by FY24 (excluding any dividends or M&A activity).
ISSUER PROFILE
ASDA is the third largest supermarket chain in the UK.
ESG CONSIDERATIONS
ASDA has an ESG Relevance Score of '4' for Governance Structure due
to private equity ownership that may favour aggressive financial
policy decisions in the future, which has a negative impact on the
credit profile, and is relevant to the ratings in conjunction with
other factors.
ASDA has an ESG Relevance Score of '4' for Group Structure due to
complexity of the group structure with a number of related-party
transactions, which has a negative impact on the credit profile,
and is relevant to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
BRACKEN MIDCO 1: Fitch Gives 'B(EXP)' to GBP380MM PIK Toggle Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Bracken Midco 1 plc's (Midco1) GBP 380
million senior PIK toggle notes an expected rating of
'B(EXP)'/'RR6'. The assignment of a final rating is contingent on
the receipt of final documents conforming to information already
received.
The GBP380 million senior PIK toggle notes will refinance Midco1's
existing GBP368.2 million senior PIK toggle notes which mature in
2023.
Midco1 is the indirect holding company of Together Financial
Services Limited (Together; BB-/Stable), a UK-based specialist
mortgage lender. Midco1's debt rating is notched from Together's
IDR as Midco1's debt is taken into account when assessing
Together's leverage, and Midco1 is totally reliant on Together to
service its obligations. The GBP380 million senior PIK toggle notes
are effectively structurally subordinated to the obligations of
Midco1's subsidiaries. Fitch does not expect any material increase
in Together's leverage from the re-financing exercise.
The notching between Together's IDR and the rating of the senior
PIK toggle notes reflects Fitch's view of the likely recoveries in
the event of Midco1 defaulting. While sensitive to a number of
assumptions, this scenario would only be likely in a situation
where Together was also in a much weakened financial condition, as
otherwise its upstreaming of dividends for Midco1 debt service
would have been maintained
KEY RATING DRIVERS
TOGETHER - IDRS AND SENIOR DEBT
The expected rating on Midco1's senior PIK toggle notes is driven
by the same considerations outlined in Together's most recent
rating action commentary.
RATING SENSITIVITIES
The senior PIK toggle notes' rating is sensitive to changes in
Together's IDR, from which it is notched, as well as to Fitch's
assumptions regarding recoveries in a default. Lower asset
encumbrance by senior secured creditors could lead to higher
recovery assumptions and therefore narrower notching from
Together's IDR. The notes would be sensitive to wider notching if
they are further structurally subordinated by the introduction of
more senior notes at Midco1 with similar recovery assumptions.
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade would be supported by evidence that Together's
franchise and business model has remained robust amid abating
pandemic pressures, in addition to improving financial profile
metrics, notably asset quality and an absence of a material
increase in leverage.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Material asset quality weakness feeding into liquidity
pressures. This could arise from a significant decline in
redemptions and repayments or material depletion of Together's
immediately accessible liquidity buffer, for example resulting
from constrained funding access, or if Together needs to
inject cash or eligible assets into the securitization
vehicles to cure covenant breaches driven by asset quality
deterioration, which could weaken its corporate liquidity.
-- Consolidated leverage increasing to above 6x on a sustained
basis, which could arise from a material slowdown in
Together's rate of internal capital generation, for example
due to a deteriorating operating environment adversely
affecting asset quality leading to higher impairment charges,
significant net interest margin erosion or property price
declines leading to an inability to realise sufficient
collateral values.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
HARBOUR ENERGY: Fitch Gives Final 'BB' to USD500MM Unsec. Notes
----------------------------------------------------------------
Fitch Ratings has assigned UK-listed Harbour Energy PLC's USD500
million senior unsecured notes due 2026 a final rating of 'BB' with
a Recovery Rating of 'RR4'.
Fitch rates the senior unsecured notes using a generic approach for
'BB' category issuers, which reflects the relative instrument
ranking in the capital structure, in accordance with Fitch's
Corporates Recovery Ratings and Instrument Ratings Criteria. While
most of the company's debt will be represented by the secured
reserve base landing (RBL), the company's leverage is low and it
plans to focus on unsecured funding.
Harbour's 'BB' Long-term Issuer Default Rating (IDR) reflects (i)
its increased scale of production following the completed
acquisitions; (ii) low financial leverage and conservative
financial and hedging policies; and (iii) a favourable tax
position. At the same time, Harbour's 1P and 2P reserve life is
lower than peers' (2P: seven years based on the 2020 pro-forma
production), and its cost of production and decommissioning
liabilities are high. Fitch believes that Harbour should be able to
maintain broadly stable production from the current asset base in
the medium term. Its longer-term performance will depend on its
ability to pursue M&A opportunities or transfer contingent
resources (2C) into reserves.
KEY RATING DRIVERS
Largest UKCS Player: After acquiring ConocoPhillips' UK assets in
2019 and Premier Oil plc in 2021, Harbour has become the largest UK
Continental Shelf (UKCS) player by level of production. The
company's current production (2021 proforma guidance: 185-195
thousand barrels of oil equivalent per day, kboe/d) is focused
mainly on the UK (more than 90%) but well-diversified by hubs.
Harbour operates over two-thirds of its production, which makes its
capex fairly flexible; and its portfolio is well-balanced between
liquids (around 55% of production) and natural gas (45%).
Low Reserve Life: Harbour's reserve life is lower than peers. In
2020, its 2P reserve life based on the pro-forma production stayed
at seven years, lower than that of Aker BP ASA (BBB-/Stable, 11
years), Lundin Energy AB (BBB-/Stable, 11 years) and Neptune Energy
Group Midco Limited (BB/Stable; 12 years). This is mitigated by
Harbour's conservative leverage, which should allow for
acquisitions, and substantial resources (2C), a significant share
of which relates to assets in production or under development.
While Harbour should be able to maintain relatively stable
production in the medium term from the current reserve base, its
production potential over the longer term will depend on its
ability to replenish reserves organically and through
acquisitions.
High Costs, Low Taxes: Harbour's current cost position of USD16/boe
is fairly high, albeit typical for UKCS, and could put the company
at a disadvantage in a consistently low oil-price environment. This
is mitigated by Harbour's favourable tax position with significant
accumulated losses, which should largely shield it from taxes in
the next five years. Overall, Harbour's Fitch-projected unit
margins (funds from operations (FFO)/boe) are broadly comparable
with its North Sea-focussed peers.
Conservative Financial Policies: Harbour targets maintaining net
leverage (defined as net debt to EBITDAX) below 1.5x through the
cycle. Fitch's projected FFO net leverage below 2.0x over 2021-2024
is commensurate with the company's target, although Fitch
recognises that leverage could be affected by potential
acquisitions. Fitch assumes dividends will be paid in 2022-2024 but
note that the company is yet to formalise its dividend policy.
Moderate Capital Intensity: Fitch assumes Harbour's capital
intensity to be moderate relative to peers at around USD10/boe
produced over the forecast horizon, or around USD750 million per
year (excluding decommissioning obligations). Harbour's focus is on
small scale, short cycle capex with projects largely based on the
current infrastructure, including infill drillings. Harbour
operates around two-thirds of its production, which gives it a
reasonably high degree of control over its capex budget.
Hedging Policies Positive: Fitch views positively Harbour's hedging
policy, which should protect its cash flows in case of a
significant drop in oil and natural gas prices. Fitch estimates
that currently 36% of its liquids production and 57% of its natural
gas production in 2022-23 are hedged at an average price of
USD61/bbl and USD6.2/mcf, respectively (mainly using swaps). This
is above Fitch's price deck used for the period.
Addressing Energy Transition Risks: Fitch assumes that at least in
the next three to five years the impact of energy transition on oil
and gas companies will be limited. However, over the long term,
industry participants, and in particular pure upstream players, may
be subject to more vigorous regulations, and their margins could be
affected by carbon taxes and other regulatory measures. Fitch views
positively Harbour's target to become carbon neutral on the Scope
1&2 basis by 2035 through minimising emissions and investments in
carbon offsets.
High Decommissioning Obligations: Harbour has an ESG Relevance
Score of '4' for 'Exposure to Environmental Impacts' due to high
decommissioning liabilities, which negatively affect the company's
cash flows.
Harbour's pro-forma decommissioning liabilities at end-2020 were
high at around USD4.5 billion (pre-tax, excluding a refund from
Shell), or around USD8/boe per 2P reserves (Aker BP: USD3/boe;
Ithaca Energy Ltd (B/Stable): USD6/boe). Most
decommissioning-related cash outflows are long term and tax
deductible. Fitch's approach is not to add decommissioning
liabilities to debt, but to deduct them from projected operating
cash flow as they are being incurred. Fitch assumes that over the
forecast horizon Harbour's gross decommissioning expense will
average around USD300 million per year on a pre-tax basis.
DERIVATION SUMMARY
Harbour's level of production (pro-forma 2020: 234kboe/d) is
comparable with that of Aker BP ASA (211kboe/d) and higher than
that of Lundin (165kboe/d) and Neptune (165kboe/d). Its 2P reserve
life is low relative to peers (seven years in 2020, compared to
Neptune's 12 years and Aker BP and Lundin's 11 years) and
counterbalanced by substantial 2C resources and low leverage (FFO
net leverage below 2x in 2021-2024), allowing for acquisitions.
KEY ASSUMPTIONS
-- Brent price of USD63/bbl in 2021, USD55/bbl in 2022, and
USD53/bbl in 2023 and 2024;
-- TTF price of USD10/mcf in 2021, USD6/mcf in 2022, and USD5/mcf
in 2023 and 2024;
-- Production volumes averaging around 200 kboe/d through 2024;
-- Capex (excluding decommissioning) averaging approximately
USD750 million per year through 2024;
-- Dividends paid out from 2022.
RATING SENSITIVITIES
Factor that could, individually or collectively, lead to positive
rating action/upgrade:
-- Material improvement in the business profile (e.g. much higher
proved reserve life and lower production costs) while
maintaining a conservative financial profile (FFO net leverage
below 1.5x).
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- FFO net leverage consistently above 2.0x;
-- Falling proved reserve life;
-- Falling absolute level of reserves;
-- Consistently negative FCF after dividends.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Strong Immediate Liquidity: Harbour's capital structure is
dominated by a senior secured RBL facility maturing in 2027 with
current availability of USD3.3 billion. Harbour's notes will be
subordinated to the RBL and are meant to be mainly used to repay
the USD400 million junior facility from Shell. Harbour's liquidity
buffers are represented by the unutilised RBL portion (around
USD700 million at 30 June 2021) and unrestricted cash (USD424
million). Fitch views Harbour's immediate liquidity position as
strong but it could be affected by RBL re-determinations and
possible acquisitions.
ESG CONSIDERATIONS
Harbour has an ESG Relevance Score of '4' for 'Exposure to
Environmental Impacts' due to high decommissioning obligations,
which has a negative impact on the credit profile, and is relevant
to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
JD WETHERSPOON: Egan-Jones Lowers Sr. Unsecured Ratings to CCC+
---------------------------------------------------------------
Egan-Jones Ratings Company, on October 8, 2021, downgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by J D Wetherspoon PLC to CCC+ from B-.
Headquartered in Watford, United Kingdom, J D Wetherspoon PLC owns
and operates group of pubs throughout the United Kingdom.
MAISON FINCO: Fitch Gives Final 'BB+' to GBP275MM Sec. Notes
-------------------------------------------------------------
Fitch Ratings has assigned Maison Finco Plc's GBP275 million senior
secured notes a final rating of 'BB+'. The notes are guaranteed by
Maison Bidco Limited (Issuer Default Rating (IDR): BB-/Stable),
Keepmoat Homes Limited and other key group entities.
The IDR of Maison Bidco (trading as Keepmoat) is constrained by
high leverage resulting from the acquisition of Keepmoat by Aermont
Capital. Rating strength is its solid business profile, which
benefits from established collaborative business partnerships with
local authorities and registered providers (RP) in sourcing land
and delivering mixed-tenure residential developments.
Fitch forecasts funds from operations (FFO) gross leverage at 4.0x
for the financial year ending October 2021, and gradually reducing
to below 3.5x in the next 24 months.
KEY RATING DRIVERS
Affordable-Focused Homebuilder: Keepmoat is a UK homebuilder
specialising in delivering large-scale, residential-led, schemes,
which are predominantly on brownfield sites (72% of FY20
completions). Its geographical focus is in the north, the Midlands
and part of Scotland, where Keepmoat offers a standardised product,
typically two- to four-bedroom homes. Its homes are affordable,
mostly aimed at first-time buyers (FY20: 76% of total private
sales) and social landlords. The average selling price (ASP) of its
homes in 2020 was GBP165,000 versus GBP267,000 for England overall.
Forward-funding contract sales to RPs, representing 26% of FY20
total sales, provides revenue visibility and reduces
working-capital needs.
Capital-Light Business Model: With about 4,000 units expected to be
delivered in FY21, Keepmoat is one of the UK's largest
partnership-focused homebuilders. Its business model entails
working closely with Homes England, local authorities and RPs from
the early stages of a development, including the identification and
sourcing of suitable land and its project planning. The fairly
lower land value in brownfield areas and deferred land payments
limit Keepmoat's initial capital requirements. In residential
schemes commissioned by RPs, staged payments enhance the project's
cash flow cycle compared with traditional homebuilders'.
Leverage Constrains Ratings: The GBP275 million notes issue - part
of the acquisition financing - will increase total debt by about
GBP120 million after the repayment of an existing loan (GBP157.5
million). Fitch calculates FY21 FFO gross leverage at 4.0x, before
falling to below 3.5x over the next 24 months given the expected
increase of completions. Despite Keepmoat's established business
model, leverage constrains the rating.
UK Housing Market Under-supplied: The UK housing market continues
to be under-supplied, as the amount of new homes keeps falling
significantly short of the annual 300,000 units the government
expects. In the 12 months to end-March 2020, there were 243,770
newly completed homes. Fitch expects Keepmoat to benefit from this
inherent undersupply and from government initiatives targeting
first-time buyers, such as the recent extension of the Help-to-Buy
scheme to March 2023.
Senior Secured Rating Uplift: The instrument rating for Keepmoat's
senior secured notes is based on Fitch's rating grid for issuers
with 'BB' category IDRs. Keepmoat's senior secured ratings are
viewed as a category 2 first-lien, which translates into a
two-notch uplift from the IDR of 'BB-'.
DERIVATION SUMMARY
Keepmoat is a UK partnership-focused homebuilder operating within
the affordable end of the market. Relative to traditional
homebuilding, the partnership model has lighter demands on capital,
as the land acquired is generally cheaper and can be acquired
through deferred payment terms. Its geographic focus on the north
and the Midlands, and away from London, is similar to that of
Miller Homes Group Holdings plc (BB-/Positive). Both companies
offer predominantly standardised single-family homes, although
Miller Homes' ASP in 2020 was higher at GBP260,000 compared with
Keepmoat's GBP165,000. Both are owned by financial sponsors, and
the leverage of the two medium-sized homebuilders constraints their
ratings within the 'BB' category.
Keepmoat shares some similarities with Berkeley Group Holdings plc
(BBB-/Stable), which also focuses on housing-led schemes on
brownfield sites. However, Berkeley's geographical focus on London
and the south East, its typical product - mainly large multi-family
condominiums - and an ASP of more than GBP700,000 in the past four
years differentiate its business model from Miller Homes' and
Keepmoat's. Berkeley's rating is underpinned by low FFO gross
leverage, which has been below 1.0x for at least four years and
projected to remain around that level over the next four years.
The Spanish housebuilders AEDAS Homes, S.A. and Via Celere
Desarrollos Inmobiliarios, S.A. (both BB-/Stable) focus on the most
affluent areas within their domestic market and the products
offered (apartments of large condominiums) are similar to those of
Berkeley.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for the issuer
include:
-- FY21 volumes to return to pre-Covid-19 levels (FY19),
gradually increasing to over 4,500 by FYE24;
-- ASP broadly flat in the next four years at around GBP180,000
per unit;
-- Disciplined land acquisition and measured working-capital
requirements totalling around GBP160 million FY21-FY24;
-- Operating profits to increase as operations are scaled up;
-- No dividends payments and M&A activity to FY24.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- FFO gross leverage below 2.5x;
-- Positive free cash flow.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- FFO gross leverage above 3.5x;
-- A change in the partnership model approach indicating an
increase in speculative development or land purchases;
-- Unexpected distribution to shareholders that would lead to a
material reduction in cash flow generation and slower
deleveraging.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Keepmoat's liquidity, comprising the GBP275
million senior secured notes and a newly available GBP70 million
super-senior revolving credit facility (RCF), is adequate. Part of
the new senior secured notes are earmarked to repay its existing
GBP157.5 million term loan and a GBP9 million shareholders loan. At
completion of these transactions, the capital structure of Keepmoat
will mainly comprise the new senior secured notes maturing in
2027.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
NEXT PLC: Egan-Jones Hikes Senior Unsecured Ratings to BB+
----------------------------------------------------------
Egan-Jones Ratings Company, on October 8, 2021, upgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Next Plc to BB+ from BB.
Headquartered in Leicester, United Kingdom, Next Plc conducts
retailing, home shopping, and customer services management
operations.
VITEC GROUP: Egan-Jones Hikes Senior Unsecured Ratings to BB+
-------------------------------------------------------------
Egan-Jones Ratings Company, on October 4, 2021, upgraded the
foreign currency and local currency senior unsecured ratings on
debt issued by Vitec Group plc to BB+ from BB-.
Headquartered in United Kingdom, Vitec Group plc designs,
manufactures and distributes camera supports, camera mounted
electronic accessories, robotic camera systems, prompters, LED
lights, mobile power, monitors, bags, motion control, smart phone
accessories, audio capture and noise reduction equipment.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
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